Resource title

The discount rate: a note on IAS 36

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Resource description

Measurement in financial accounting often requires determining an interest rate to discount future cash flows. One example is the International Accounting Standard (IAS)36 Impairment of assets. IAS 36´s impairment test requires determining a value in use (a present value). The Appendix A to the standard gives some guidance on how to determine a suitable discount rate. In this paper, we show that the different approaches included in IAS 36´s guidance are theoretically different. We discuss how the standard should be interpreted and applied based on the theoretical background of financial theory. Only the first alternative, we weighted cost of capital should be used and the other two alternatives should be discarded. In addition, we show that IAS 36´s guidance, applied in practice, may give rise to substential measurement errors.

Resource author

Sven Husmann, Martin Schmidt, Thorsten Seidel

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/23816

Resource license

Adapt according to the presented license agreement and reference the original author.