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In chap 23 example 9 we calculate the future liability to its current present value using the discount rate so what is the point of calculating the PV of future liability ($21.840m) ??
Why do we calculate the PV of future liability because we have borrowed the money today but we have a liability in the future to be paid like a loan where we lets say borrowed $150,000 and we have to make monthly payment for the borrowed money so why are we calculating its current present value?
Can you please explain?
Hi,
It is all about the measurement of the future payments that we are obligated to pay, as in substance we have ownership of the asset via a loan, even though this is not the legal form. To look at the payments and recognise them today we need to look at what they are in today’s terms and hence the discounting to present value.
Hope that clears up the confusion.
Thanks
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