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Dear Mike,
I have two questions regarding P2:
1. when we measure financial liability at amortised cost (let’s assume it’s a loan) – interest is Libor 3M, we pay the interest part always as at the end of each year. As we know Libor rate is floating and depends on current market conditions etc. In such case, do we need to measure the loan at amortised cost? Because without amortised cost it would be like we have only the capital liability outstanding at the end of the year, but on the other hand using amortised cost we would need to change it each year, each year effective interest rate would be different, and the impact on the income statement can vary (depending on the current and previous years Libor rate).
2. this is about indirect shareholding. I have some doubts because my local GAAP can be a bit different in this respect. We have 3 companies – A, B, C – A has 70% in B, and B has 70% in C. Effective A’s shareholding in C is 49% (70% x 70%). In this case, should A consolidate C in full, or should it use equity method?
Sorry for my long questions, I hope you can resolve my doubts.
Yes, there will be variability in the statement of profit or loss fluctuating with the variability of Libor
A company is a subsidiary of another if the first mentioned company is a subsidiary of any company that is that other’s subsidiary!
That surely says it all!
Let’s try that again with A, B and C
A company (C) is a subsidiary of another (A) if the first mentioned company (C) is a subsidiary of any company (B) that is that other’s (A’s) subsidiary
OK?!
Dear Sir,
I have one additional question regarding amortised cost – if we are not able to say when the future cash flow (let’s say repayment of a loan) will take place, how can we calculated effective rate?
E.g. in agreement between related parties, if the contract says “the borrower will repay when it wants to but no later than at 31 Dec 2030”, how should we approach this? Shoulde we use 2030 as the estimated cash flow date when calculating IRR?
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