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Dear Sir,
The problem arises when I practise ASHANTI(JUN 10 EXAM). Here is the info. given as follows:
Ashanti co. bought a 20m bond with annual int. of 8%( also the effective rate), payable on 30 Apr..
The bond is classified as FVTPL
At 30 Apr.2004, CV=20m, int received as normal.
But the issuer of bond is involved in financial difficulty.
The mkt int. rate is 10% now and A co. estimates FCF of bond will be 1.6m in 2011, 1.4m in 2012, and 16.5m in 2013.My question:
I notice the answer uses the 10% current mkt rate as discount rate. Is it because we need to know the current FV so 10% mkt rate is the rate should be used.If it is an amortised financial asset, can we use the original effective rate 8% to calculate the PV in order to find out the impairment?
Thanks in advance!!!
“My question:
I notice the answer uses the 10% current mkt rate as discount rate. Is it because we need to know the current FV so 10% mkt rate is the rate should be used.”There has been a revision to the BPP revision kit and the original rate of 8% is now shown in the amended answer!
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