Reference no: EM132774975

Question - In March 2020, the Bank Negara Malaysia (BNM) introduced measures to ease financial difficulties due to the impact of Covid-19. One of the measures is that BNM ordered all banks to grant moratorium on loan repayments for six months, effective April 2020. This moratorium enabled borrowers to delay the payment of loans for a period of six months. This measure is welcome by many especially those affected most by the Covid-19.

Initially, the banks decided to accrue interest during the moratorium period. This has resulted an outcry among the public as they argued that the decision was inhumane and the banks just focused on making more profit from the current situation. Banks, on the other hand, argued that they needed to accrue interest during the moratorium period as they wanted to avoid recognizing modification loss in profit or loss as required by MFRS 9. It was estimated that the modification loss for all banks would amount to billions of ringgit. However, the banks finally agreed not to accrue interest after reaching an agreement with the Ministry of Finance.

Write report to answer the following: Explain accounting treatment for modification of loan as prescribed by MFRS 9.