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Hey,
I was wondering if any of you have any idea of an answer to a hypothetical…..
K, Company A is carrying a balance on deferred revenue which is effectively being treated under IFRS as a loan and will stay there for three years before being transferred on straight line to Revenue on the P+L for 15 years.
As it’s being treated as a loan interest is hypothetically payable and is being accounted for though in reality will be offset against the revenue figure once it starts being pulled from the BS and accounted for on the P+L as revenue.
The question I have surrounds the time value of money.
As the balance is being carried for well over a decade obviously the amount will devalue in real terms however in order to maintain a true and fair view I’m assuming you’d have to account for it somehow…
My question is: what and how would you do it?
Thanks in advance for all your inputs!
To ensure faithful representation and reliability of financial statements, is it better to unwind the value over 15 years? (i.e. usage of present value)
PV= FV X 1/(1+r)^n
where n=no of years, r= discount rate
in this way it will satisfy the matching concept in spliting the value to the relevant years.
This is what i will do if i encounter qns like this, not sure if it is the correct treatment…unwinding is under FRS 32
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