- This topic has 1 reply, 2 voices, and was last updated 8 years ago by
.
- Posts
I’ve been pulling my hair out over this for a while
Under IFRS 9 credit losses should be calculated using the effective rate of interest but in the below example past exam Q the current interest rate has been used to calculate the PV
In the June 2010 exam there is an impaired financial asset:
‘Ashanti feels that as at 30 April 2010, the bond is impaired and that the best estimates of total future cash receipts are $2.34 million on 30 April 2011 and $8 million on 30 April 2012. The effective annual interest rate is 8% or 4% on a semi annual basis, The current interest rate for discounting cash flows as at 30 April 2010 is 10%. No accounting entries have been made in the financial statements for the above bond since 30 April 2009’
The answer discounts the $2.34m and $8m by 10% over 2 years to get an impairment of $8.7m.
I would have discounted this by the effective rate 8%. What am I missing, why would I use the actual interest rate as opposed to the effective rate to calculate the loss?
Thanks,
- You must be logged in to reply to this topic.