European Financial Stability Facility and Reducing balance: Difference between pages

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The European Financial Stability Facility (EFSF) was established in 2010 as a temporary rescue mechanism.The EFSF’s mandate is to safeguard financial stability in Europe by providing financial assistance to Euro zone Member States.
1.


The EFSF is authorised to use instruments and techniques including:
A basis of allocating costs or allowances across successive time periods by applying a consistent periodic percentage charge to - for example - the reducing net book value of a fixed asset.


#Lending to countries in financial difficulties.
#Intervening in the debt primary and secondary markets.
#Financing recapitalisations of banks and other financial institutions through loans to governments.


To fulfill its mission, the EFSF issues bonds or other debt instruments on the capital markets.
For example,  
a fixed asset has a cost of $12m, to be depreciated on a reducing balance basis at a rate of 40% per year.


The EFSF is backed by guarantee commitments from the Euro zone Member States. This Facility was replaced by the European Stability Mechanism (ESM) in 2012 which finances new programmes. However, it continues to be used for the ongoing programmes in Greece, Portugal and Ireland.
The depreciation charge for Year 1 would be
 
$12m x 40%
 
= $4.8m.
 
 
The net book value at the end of Year 1 (and the start of Year 2)
 
= 12 - 4.8
 
= $9.2m.
 
 
The depreciation charge for Year 2
 
= $9.2m x 40%
 
= $3.68m.
 
 
The net book value at the end of Year 2 (and the start of Year 3)  
 
= 9.2 - 3.68
 
= $5.52m.
 
And so on.
 
Using a reducing balance basis of depreciation, the net book value never falls to zero (unless the asset is disposed of).
 
 
2.
 
''UK tax.''
 
UK Writing Down tax Allowances are normally available to be claimed on a reducing balance basis.




== See also ==
== See also ==
* [[euro zone]]
* [[Depreciation]]
* [[Stability Bond]]
* [[Straight line]]
* [[European Stability Mechanism]]
* [[Sum of the digits]]
* [[Writing down allowance]]
 
[[Category:Accounting,_tax_and_regulation]]

Revision as of 15:00, 26 November 2014

1.

A basis of allocating costs or allowances across successive time periods by applying a consistent periodic percentage charge to - for example - the reducing net book value of a fixed asset.


For example, a fixed asset has a cost of $12m, to be depreciated on a reducing balance basis at a rate of 40% per year.

The depreciation charge for Year 1 would be

$12m x 40%

= $4.8m.


The net book value at the end of Year 1 (and the start of Year 2)

= 12 - 4.8

= $9.2m.


The depreciation charge for Year 2

= $9.2m x 40%

= $3.68m.


The net book value at the end of Year 2 (and the start of Year 3)

= 9.2 - 3.68

= $5.52m.

And so on.

Using a reducing balance basis of depreciation, the net book value never falls to zero (unless the asset is disposed of).


2.

UK tax.

UK Writing Down tax Allowances are normally available to be claimed on a reducing balance basis.


See also

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