When measuring a liability at present values,the discount rate to be used,according to paragraph 47 of AASB 137,is:
A) the pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability.
B) the after-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability.
C) the pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability, and shall also reflect risks for which future cash flows have already been adjusted.
D) the pre-tax risk free rate.

Question

Quizplus · Accepted Answer

According to paragraph 47 of AASB 137, the discount rate to be used when measuring a liability at present values is the pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. This rate should not include risks that have already been adjusted for in the estimation of the future cash flows. Therefore, option A is the correct choice. Option B is incorrect because it specifies an after-tax rate, whereas the standard requires a pre-tax rate. Option C includes risks that have already been adjusted for and is therefore incorrect. Option D specifies a risk-free rate, which may not always be appropriate for determining the discount rate for a liability.

When Measuring a Liability at Present Values,the Discount Rate to Be