On 01.01.20, GAMMA Inc. takes out a loan of 600,000 at 10% from a bank to finance a new machine. The loan is paid out to the company at a discount of 6%. GAMMA Inc.

On 01.01.20, GAMMA Inc. takes out a loan of 600,000 at 10% from a bank to finance a new machine. The loan is paid out to the company at a discount of 6%. GAMMA Inc. incurred fees of 450 for legal advice during the loan negotiation. Interest is payable in arrears on the 31.12 each year and the loan amount is to be repaid on 31.12.23. The effective interest rate is calculated to be 12%.

a) Determine the amount at which the loan should be measured at initial recognition.

b) Determine the carrying value of the loan at the end of the years 20, 21, 22 and 23

and the amount recorded as interest expense for each year.

c) Gamma Inc. guarantees for a bank loan for its subsidiary TETA Inc. Outline how this

guarantee is to be treated in the financial statements of GAMMA Inc.