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Amortised value and Fare value for Financial instrument

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Amortised value and Fare value for Financial instrument

  • This topic has 2 replies, 2 voices, and was last updated 2 years ago by Stephen Widberg.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • August 3, 2022 at 5:07 pm #662395
    jingdong
    Participant
    • Topics: 89
    • Replies: 115
    • ☆☆☆

    Dear Stephen, Would you please help me this question? the details are shown as follows:
    01/12/2004 borrowed 47m, market interest rate 5%; 30/11/2005 borrowed additional 45m when market interest rate 7.4%, both liabilities are repayable on 30/11/2009. required: accounting liability under current accounting standards by using amortised value and fare value respectively at 30/11/2005.

    The answer:
    Amortised value: 30/11/2005 initial loan 47+47×5%=49.35; new loan 45
    Fair value: 30/11/2005 initial loan 45; new loan 45 it would be a net profit 2 which made up interest expense 47 x 5%=2.35 and unrealized gain 49.35-45=4.35

    I am very confused that why they use 45 for both loan on 30/11/2005 under fare value method? i was trying to use factor 7.4% for calculation present value annuity, my answer is 43.40, how they calculate fare value by using 45? many thanks

    August 3, 2022 at 5:58 pm #662403
    jingdong
    Participant
    • Topics: 89
    • Replies: 115
    • ☆☆☆

    Dear Stephen, the answer in the amortised value section also said that initial loan: 47×1.05 for 5 years=59.98; new loan 45×1.074 for 4 years=59.89, which they are almost identical on 30/11/2009. do you think this is an evidence of level 1 active market to measure both loan fare value as 45 at 31/11/2005?
    Many thanks

    August 4, 2022 at 11:22 am #662435
    Stephen Widberg
    Keymaster
    • Topics: 16
    • Replies: 3411
    • ☆☆☆☆☆

    Not sure I can help – this is nothing like anything I’ve seen in the current syllabus.

    Looks like old syllabus where current issues were examined in much more depth.

    You can refer to this posting:

    https://opentuition.com/topic/fair-value-of-financial-liability/

    Recommend you don’t spend much time here.

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