Discount rate and IAS 16: Difference between pages

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International Accounting Standard 16, dealing with property, plant and equipment (PPE).


In short-term financial markets, 'discount rate' means the quoted market rate for traded instruments quoted at a discount.
Issued by the International Accounting Standards Board.  
 
The market discount rate is quoted based on a percentage of the ''maturity amount''.
 
 
<span style="color:#4B0082">'''Example 1: Discount rate calculation'''</span>
 
The maturity amount for an investment is £10m.
 
The gain for the single period from the start to the final maturity is £2m.
 
The periodic discount rate (d) is:
 
(d) = Gain / End amount
 
= 2 / 10
 
= '''20%'''
 
 
In the US the market discount rate is sometimes known as the ''discount yield''.
 
This is different from a [[yield]] or interest rate, which is conventionally quoted based on a percentage of the ''starting amount''.
 
 
<span style="color:#4B0082">'''Example 2: Yield calculation'''</span>
 
The starting amount for an investment is £8m.
 
The gain for the single period from the start to the final maturity is £2m.
 
The periodic yield (r) is:
 
(r) = Gain / Start amount
 
= 2 / 8
 
= '''25%'''
 
 
Notice that the discount rate and the yield calculated above both relate to exactly the same deal.
 
£8m is invested now, and £10m is repaid at the end of one period.
 
The discount rate of 20% and the yield of 25% both summarise the same deal, using different conventional bases.
 
 
 
2.
 
The term 'discount rate' is used in certain other contexts as a synonym the the cost of capital.
 
In these contexts, discount rate means the yield used to calculate [[discount factor]]s and present values.
 
 
3.
 
In the field of pensions, discount rate means the rate used to discount future liabilities of a Defined benefit pension scheme in order to calculate the present value of the liabilities, often for the purpose of comparing them with the market value of the scheme’s assets. 
 
Historically it was common to use the blended rate of investment return expected on the actual assets in the scheme, but typically now a market rate is used, such as the government bond or AA corporate bond yield for a fixed income security with a similar duration to that of the underlying liabilities.
 
 
4.
 
In US central banking, the term 'discount rate' means the interest rate that member banks pay the Federal Reserve when the banks use securities as collateral.  The discount rate acts as a benchmark for interest rates issued. 
 
Other central banks also have similar discount rates.




== See also ==
== See also ==
* [[CertFMM]]
* [[Fixed assets]]
* [[Cost of capital]]
* [[IAS 38]]
* [[Discount]]
* [[International Financial Reporting Standards]]
* [[Discount basis]]
* [[Other comprehensive income]]
* [[Discount instruments]]
* [[Property, plant and equipment]]
* [[Discounted cash flow]]
* [[Interest rate]]
* [[Monetary policy]]
* [[Nominal annual discount rate]]
* [[Periodic discount rate]]
* [[Periodic rate]]
* [[Yield]]




===Other links===
== External link ==
[http://www.treasurers.org/node/8837 Students: Triumph with timelines, The Treasurer, March 2013]
[https://www.iasplus.com/en/standards/ias/ias12 IAS 12 - IAS Plus]


[[Category:Accounting,_tax_and_regulation]]
[[Category:Corporate_finance]]
[[Category:Corporate_finance]]

Revision as of 14:47, 3 March 2022

International Accounting Standard 16, dealing with property, plant and equipment (PPE).

Issued by the International Accounting Standards Board.


See also


External link

IAS 12 - IAS Plus