ACCT 455 Lecture Notes - Lecture 7: Effective Interest Rate, Partial Application, Fair Value
31 Mar 2018
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Accounts receivable and payable: approximates value-in-use if time is short (discount factor is negligible: cash flows fixed by contract, example: long-term debt valued at pv by discounting at the effective interest rate. Book value = value-in-use: amortized cost valuation: (pv) discounting asset and liabilities at effective interest rate. 7. 4 financial instruments: a contract that creates a financial asset of one firm and a financial liability/equity instrument of another firm, broad definition of financial assets and liabilities. Includes both primary (accounts/notes receivable/payable, debt/equity instruments, bonds outstanding) and derivative financial instruments. If bonds fair valued gains/losses on bonds offset gains/losses on loans: accounting for changes in own credit risk example, 1. Firm has opted under ifrs 9 to fair value debt outstanding: 2. Firm writes debt down to fair value and records a gain: 4. Ifrs 9: requires own credit risk gains/losses to be included in oci.
