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ahmed9729
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When we impair the financial assets by discounting the remaining maturity value (eg: 80% of 50,000) to Present Value, why do we take the effective interest rate for discounting and not the market rate for similar financial assets?
P2-D2
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Because the effective rate is specific to the asset that we own and the current market rate does not reflect the borrowing granted.
Thanks
ahmed9729
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But when we discount convertible bonds to get the debt and equity element, dont we use the market rate for that?
P2-D2
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Yes we use the market rate for similar debt without the conversion option. The accounting treatment of convertible debt and impairment of financial assets are different as they are treating different items in the accounts.
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