Discounting of Security Deposit
Discounting of Security Deposit There are two types of deposits available 1. Interest free deposits 2. Deposits having interest. As per Ind AS 109, Interest free security deposits are discounted to bring it to the present value..The whole Ind AS speaks about Fair value. Evaluation: A company receives a security deposit as per the terms of agreement and repays the same when the agreement is ended/terminated i.e. after 5 years. For the period of 5 years the company has the company and as per the time value of money the amount repaid after 5 years is not the same amount which is received now. It involves time factor. In order to bring it to the fair value, security deposit is discounted using the Incremental borrowing rate. The difference between the discounted amount and the amount received will be accounted as income received in advance. Such amount will be transferred to p&l (in...