Hi,
I have a specific question about one of the IFRS 16 posts on this forum: https://ifrscommunity.com/knowledge-bas ... of-leases/ The author of this post has kindly provided an Excel example that shows how to measure a lease with quarterly payments https://ifrscommunity.com/wp-content/up ... ments.xlsx
The example seems to be using the daily compounding interest method. I'm a bit concerned that the discount factor used in the example is still based on the annual interest of 5%. From recollection of my financial knowledge, it appears to me that the daily interest (ie. 5% / 365) would be more appropriate to use, for consistency with the daily compounding interest method.
I would appreciate it a lot if the author of that post can revisit this example and anyone please correct me if I'm wrong.
Cheers,
Daisy
Lease example with quarterly payments
Re: Lease example with quarterly payments
can you please copy-paste here the formula that you think uses daily compounding?
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Re: Lease example with quarterly payments
Hi Marek,
The first formula in the Excel document under the column "Discount factor" is this:
=1/(1+$E$16)^((C27-$A$15)/365)
$E$16 = 5% per annum
C27 = 4/1/2001
$A$15 = 1/1/2001
I was thinking whether the formula should have been = 1/(1+$E$16/365)^((C27-$A$15)/365)
The first formula in the Excel document under the column "Discount factor" is this:
=1/(1+$E$16)^((C27-$A$15)/365)
$E$16 = 5% per annum
C27 = 4/1/2001
$A$15 = 1/1/2001
I was thinking whether the formula should have been = 1/(1+$E$16/365)^((C27-$A$15)/365)
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- Posts: 4
- Joined: 24 Oct 2021, 14:51
Re: Lease example with quarterly payments
[EDIT:link removed]
I also find the above link which provides a formula that's similar to my approach.
I also find the above link which provides a formula that's similar to my approach.
Re: Lease example with quarterly payments
So this uses daily compounding in your opinion?daisystar88 wrote: ↑25 Oct 2021, 00:44 The first formula in the Excel document under the column "Discount factor" is this:
=1/(1+$E$16)^((C27-$A$15)/365)
$E$16 = 5% per annum
C27 = 4/1/2001
$A$15 = 1/1/2001
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- Posts: 4
- Joined: 24 Oct 2021, 14:51
Re: Lease example with quarterly payments
Hi Mark,
My perception is it's trying to use daily compounding. Please correct me if I was wrong. If it does use daily compounding, I think the interest rate used should also be a daily one (instead of an annual one)!
Cheers,
Daisy
My perception is it's trying to use daily compounding. Please correct me if I was wrong. If it does use daily compounding, I think the interest rate used should also be a daily one (instead of an annual one)!
Cheers,
Daisy
Re: Lease example with quarterly payments
it uses annual compounding
see this comparison: picture credits:
https://www.educba.com/daily-compound-interest-formula/
see this comparison: picture credits:
https://www.educba.com/daily-compound-interest-formula/