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Should I discount trade debtors?


Is it required by IFRS to discount the trade debtors at the year end to arrive at fair value? If so how to select a discount rate?

asked Nov 5, 2013 in IAS 36 - Impairment of Assets by anonymous

1 Answer

0 votes
Trade receivables or debtors come under loans and receivables as per IAS 36 / IFRS 9. Loans and receivables are valued at fair value initially. Therefore debtors' initial fair value will be the invoiced amount. Generally debtors are short-term receivables and are not normally subject to
discounting, nor debtors normally have an effective interest rate. However in special cases where the period by which the debtors are collected is expected to be long-term, then the requirement of discounting might arise.

Debtors will have to be assessed for impairment at each balance sheet date, and will be impaired if the present value of the cash flows is less than the carrying amount.  The assessment can be on an individual or group basis. The old methods of calculating bad debt provisions based on debtor aging are unlikely to produce a correct figure for the present value of the future cash flows and general provisions will not comply with the methodology set out in the IAS 36/IFRS 9.

Check below for some example for a debtor provision
http://www.ifrsanswer.com/1/general-provision-for-doubtful-debts
answered Nov 10, 2013 by Kapig Level 2 Member (3,350 points)


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