Applying the amortized cost and effective interest rate method under IFRS, an illustrative example
When preparing financial statements under IFRS, accountants and other financial professionals often need to apply the amortized cost method eitherfor a simple loan agreement or for the determination of a lease liability. The balance sheet value of several financial assets/liabilities and the interest charge in the P&L are determined using this approach.
Based on our experience – since the concept differs from Hungarian Accounting Law- there are often difficulties in the correct application of this method. In this article using a simplified example, we aim to demonstrate how to correctly apply the amortized cost and effective interest rate method under IFRS.
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