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Discounting – Borrowings

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Discounting – Borrowings

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by P2-D2.
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  • January 25, 2022 at 2:16 pm #647444
    vikipulka
    Member
    • Topics: 21
    • Replies: 21
    • ☆

    Good day,

    Could you please help to understand the following, I’m a little bit confused here…
    Should we make a discounting adjustment for non-current borrowings?

    I mean, for non-current loan receivables it makes perfect sense. We reduce the amount of loans to the present value, because later the amount of money will worth less than today.
    So if let’s say the amount of non-current loans receivables is 1,000, then with a discounting adj it could be 950 or less.
    However, when it comes to liabilities, borrowings, it doesn’t make any sense. From one point of view, ok, the PV is worth more today so it will be less in future, and yes there should be a disc adj. But at the same time, we’re talking about liabilities here! How we can “artificially” reduce our liabilities?..

    Thank in advance

    January 26, 2022 at 8:12 am #647489
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6440
    • ☆☆☆☆☆

    Hi,

    We would only discount if it was material and with short-term borrowings then it is unlikely to be so hence discounting is not commonly used.

    thanks

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