Forums › ACCA Forums › ACCA SBR Strategic Business Reporting Forums › unwinding the discount/debtor ledger
- This topic has 2 replies, 2 voices, and was last updated 1 year ago by mrjonbain.
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- November 13, 2022 at 10:46 pm #671385
Hi,
Please could someone explain what it means to unwind discounts and also to unwind the receivables ledger?November 14, 2022 at 7:47 am #671411I will try to illustrate with example based on bills issued at par $1 Million to be settled at $1210000 in two years time. The implicit rate of interest is ten percent. This will involve on issue recognising debit to bank of $1 million and recognition of liability of $1million. After one year profit and loss should be debited by $100000 (0.1 X $1 million). Simultaneously liability for settlement of bill is credited by $100000. This follows accruals principle. The next year profit and loss should be debited by $110000($1100000 X 0.1). At same time liability should be credited by same amount leading to liability of $1210000. When bills are paid debit liability $1210000 and credit bank $121000. This extinguishes liability. The process above shows how discounted liability is initially recognised and then unwound as payment date gets closer.
November 14, 2022 at 7:59 am #671416The above example, shows initial liability at discounted amount taking into account implicit discount on liability on bills issued. The process of increasing liability each year while recognising this increase through profit and loss is an example of unwinding the discount.
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