Amortized Cost Tool
Financial instruments in the “Loans & Receivables”, “Held to Maturity” and “Originated liabilities” categories are to be valued at their amortized cost according to IAS 39. In doing so differences between amounts paid and amounts received, as well as transaction costs, are to be allocated using the effective interest method. This item frequently occurs in companies in the context of external financing.
To simplify the complex calculations for the assessment of the book value, amortisation amount and adjustment amounts FAS AG has developed a flexible valuation tool which displays the following items cumulatively or can ascertain the required value:
- Determination of the effective interest rate for fixed-interest instruments;
- Determination and recalculation of the effective interest rate for variable interest instruments according to IAS 39.AG 7 & 8;
- Distribution of premiums, disagios and transaction costs over the duration of the instrument;
- Distribution of differences from embedded derivatives subject to a separation obligation over the duration of the instrument;
- Determination of an impairment requirement for active, continuing acquisition costs of valued financial instruments;
- Determination of the amortisation amount for each period;
- Determination of the clean and dirty book value and separate presentation of accrued interest;
- Determination of the contribution made by changes to cash flow expectations;
- Calculation of fair values for information for the notes to the annual financial statement;
- Adjustment bookings on the basis of local GAAP and IFRS valuation for purely IFRS bookings and IFRS adjustment bookings.
The Amortized Cost Tool can be used without problems for embedded derivatives with other FAS valuation tools or with additional valuation models for financial instruments. This guarantees a consistent valuation for the whole product.
Only the condition of the relevant instruments is required for valuation using the Amortized Cost Tools. Market data only has to be determined if additional embedded derivatives have to be valued or if a fair value has to be assessed.
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