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I do know the concept of how a double entry system works and PV.
I didn’t understand when you said Value of Non current liabilities change with change in cost of capital and when it gets closer to the redemption date. How does it change? Could you please give me an example.
I wanted to know how the changes in the assets or liabilities be reflected in the statement of profit or loss when Fair Vale Measurement is used.
sorry for not making myself clear last time.
Ohh Ok .. I got the answer to the second part of the question
Suppose in case of PP&E , if Revaluation method is used the the new value is measured using the Fair value measurement technique ( mostly through market research) and if such value results is lower than the book value then it is recognized as a loss and if it is more it is recognized as a profit.And if it is a liability that is revalued to fair value it will be the other way round. Am i right at least this time?
Fair value is measured mostly at the end of the year right? (mostly except in situations of take overs or liquidation )
Sorry im asking you so many questions on Fair Value . This will be my last question on fair value.
Well, if you know how to calculate present value, then you must understand discounting
Assume a loan of $100 is borrowed and it’s repayable in 3 years’ time by paying $133.10 The company’s cost of capital is 10%
How much should we show as a liability on the day the money is borrowed
Dr Cash $100 Cr Loan $100 even though we know that we shall have to pay $133, we still record it as $100
So we need to Dr Finance Costs and Cr the Loan Liability account with that $10 unrolled discount
A year goes by and repayment date is one year closer
How much now is the present value of that future liability?
$110 … because we have unrolled the discount $100 x 1.10/1
Next year, the liability will be recorded as $121 ($110 x 1.10/1)
So again we need to Dr Finance Costs and Cr the Loan Liability account with that $12.10 unrolled discount
Am i right at least this time? Yes
Fair value is measured mostly at the end of the year right? Correct
OK?
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