Hi,
I'm struggling with second part of 4b question from dec 2009 exam where there are two loans drawn on different dates for 45 and 47 millions respectively but if FV is used to value them they will be both priced at 45. It has sth to do with the int rate change but i just dont get it. Any help would be greatly appreciated - Thanks!
9y ago#1Hi,
The fair value of the initial loan would be calculated by discounting the future cash flows at the new rate of interest.
Thanks
Ok thanks do we recognize the decrease in loan? RE vs Liability?
9y ago#3Hi,
Not sure what you mean by the question above. Can you elaborate further please?
Thanks
Hi, sorry for not being precise - i meant this debt was injtially recognized at 47 and then it was fair valued to 45 so decrease of 2 i assume goes to RE vs Liab? Thanks
9y ago#5No worries, yes the change in the fair value would go through profit or loss (retained earnings).
Thanks
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