IFRS 9 General Question

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adnan.butt
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IFRS 9 General Question

Post by adnan.butt »

What is the difference between amortization of loan & Unwinding of a discount?
DJP
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Re: IFRS 9 General Question

Post by DJP »

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).
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Marek Muc
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Re: IFRS 9 General Question

Post by Marek Muc »

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.
DJP
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Re: IFRS 9 General Question

Post by DJP »

The discount is part of the loan's amortised cost. Its unwinding is done according do the effective interest method.
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