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A company borrowed 47 million on 1 Dec x4 when the market and effective interest rate was 5%. On 30 November x5 the company borrowed an additional 45 million when the current market and effective interest rate was 7.4%.
Both financial liabilities are repayable on 30 Nov x9 and are single payment notes, whereas interest and capital are repaid on that date.The requirement asks to account for the transaction using both amortised cost and Fair Value.
So amortised cost i have managed but i cant seem to understand their workings for the Fair value calculation.
They write that both the initial loan and new loan would have the same value and be carried at 45?I am a little confused?
Thanks in advance.Hi,
The fair value would be the present value of the future cash flows. If you discount the two loans you should find that their values are the same.
Thanks
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