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Financial Liability FVTPL calculation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Financial Liability FVTPL calculation

  • This topic has 3 replies, 2 voices, and was last updated 6 years ago by P2-D2.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • August 31, 2018 at 9:56 am #470497
    zhangcc
    Participant
    • Topics: 10
    • Replies: 10
    • ☆

    Sir,

    P2 12/09 Question:

    A company borrow $47M on 1Dec2014 with interest rate at 5% and on 30Nov 2015, the company borrow additional liability of $45M with interest rate at 7.4%. Both repayable on 30Nov2019.

    Question is to account the two loan under FVTPL on 30Nov2015.

    In the answer, the initial loan is carried at $45M making a net profit of $2M by (unrealized gain of $49.35-$45=$4.35 minus interest expense of $47*5%=$2.35)

    I don’t understand the reason why the new loan value will become the fair value of the old loan when their interest rate is different.

    Please help.

    Thanks

    September 2, 2018 at 7:52 am #470759
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    It doesn’t matter that the interest rate on the loans is different, the key is that the amount to be repaid under both is identical on 30 Nov 2019. Therefore the loans are similar loans making the new borrowing the fair value of both, as if we were to borrow the old loan under today’s conditions then this would be its fair value, reflecting the current market rate of interest and the amount we could borrow.

    Thanks

    October 15, 2018 at 3:12 am #478200
    zhangcc
    Participant
    • Topics: 10
    • Replies: 10
    • ☆

    Hi Sir,

    Just want to say thank you for your tutoring. I got a pass in SBR and am really appreciate all your help.

    Thank You

    October 20, 2018 at 8:41 am #479267
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    That’s great news to start my weekend! I’m so happy that you’ve passed, it is always a pleasure to help out students like yourself.

    Best of luck with the next exams and your future career.

    Thanks

  • Author
    Posts
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