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Hi there,
I am just looking at the impairment of the bonds in note 4 of June 2010 exam. In my lecture notes the discount rate was the original effective interest rate but in the model answer they use the current interest rate to discount the cashflows. Which one is correct. In a previous exam paper it was also the original effective rate. I cant understand how it is the current rate in this paper.
Thanks in advance for you help,
Deborah.We use up to date information so need to recalculate each time cost of capital / effective interest rate changes
Hi Mike,
So do you mean the use of the 10% current interest rate is correct rate and the calculations by the other two lecturers of the 8% original effective interest rate is incorrect? Sorry but just want to be sure because I was taught to always use the original effective interest rate.
Thanks in advance for your help Mike.
Deborah.We will use the original effective rate when we first account for the bonds but, as time goes by, we will use the up-to-date rate
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