IFRS 9 General Question
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- Joined: 14 Oct 2021, 18:12
IFRS 9 General Question
What is the difference between amortization of loan & Unwinding of a discount?
Re: IFRS 9 General Question
A loan measured at amortised cost means that any premium/discount and related transaction costs are recognised in P&L using the effective interest rate.
The terms used in your question are not part of the IFRS terminology, but to put it simply, the unwinding of a discount is part of the loan amortisation (note that if transaction costs exist, they must also be amortised).
The terms used in your question are not part of the IFRS terminology, but to put it simply, the unwinding of a discount is part of the loan amortisation (note that if transaction costs exist, they must also be amortised).
Re: IFRS 9 General Question
I understand it a bit differently.
To me, unwinding of discount is a narrower term used for items recognised at discounted amount, i.e. lower than face value. For example, you buy a zero-coupon bond for $95 with a face value of $100, and then you unwind (i.e. accrue) discount to arrive at $100 at redemption date. The same for non-financial liabilities recognised at discounted amount, e.g. decommissioning provisions.
Loan amortisation to me is a term that encompasses all accrued interest expense using amortised cost, including interest charged on the top of principal amount.
To me, unwinding of discount is a narrower term used for items recognised at discounted amount, i.e. lower than face value. For example, you buy a zero-coupon bond for $95 with a face value of $100, and then you unwind (i.e. accrue) discount to arrive at $100 at redemption date. The same for non-financial liabilities recognised at discounted amount, e.g. decommissioning provisions.
Loan amortisation to me is a term that encompasses all accrued interest expense using amortised cost, including interest charged on the top of principal amount.
Re: IFRS 9 General Question
The discount is part of the loan's amortised cost. Its unwinding is done according do the effective interest method.