FORMATION OF DEBT DISCOUNT RATE: ACCOUNTING ASPECT
The transformation of the accounting system is under the influence of those changes that characterize the development of new methods and approaches in the field of enterprise business management. Discounting is one such process, characterized by a number of features, including the determination of the rate and the choice of method of its application. The study of discount rate formation in the scientific literature is one of the most relevant.
One of the reasons is the urgency of the issue due to changes in the regulatory documents regarding the accounting of long-term receivables at present value. Based on the analysis of the essence of the category of the term "discount rate" in the legislative documents, as well as among the approaches of foreign and Ukrainian scientists, it is determined that the discount rate is of interest and considers the risk associated with a particular cash flow. In addition, the most common methods for determining the discount rate are discussed. This allowed us to construct a mechanism for determining the discount rate for long-term receivables in the form of an appropriate algorithm, which is based on the "traditional" factors of the discount rate (inflation, profitability of money and risk factor for a specific enterprise), thus considering both the country’s financial market indicators as well as peculiarities of the entity's activities.
The developed mechanism became the basis for determining the directions of changes occurring in the structure of financial reporting indicators in the accounting system. Such changes are reflected in the structure of incomes and expenses of the enterprise, because the accounting system recognizes the financial income or expense from the discounting of receivables in the form of amortization of the discount on the date of occurrence and throughout the maturity of each subsequent reporting date.
The results of the study contribute to the development of both theoretical knowledge on determining the discount rate of long-term receivables, as well as practical aspects of forming a methodological approach to accounting for the components of the financial result of the enterprise.
Al-Mahmoud, M., & Haitham, N. (2020). Sustainability and Accounts Receivable Management: A Mini-Review. Available at SSRN: http://dx.doi.org/10.2139/ssrn.3538711
Accounting Standard 28 "Impairment of Assets" is approved by the Order of the Ministry of Finance of Ukraine from 24.12.2004 № 817. Retrieved 10.04.2020 from https://zakon.rada.gov.ua/laws/show/z0035-05
Adamovska, V. S., & Sidorova, O. I. (2016). Improving the accounting of long-term receivables due to the current economic situation. Scientific Bulletin of Uzhgorod National University, 6, part 1. Retrieved 10.04.2020 from https://cutt.ly/UtGPU6z.
Ageev A.A. (2009). The problems of calculating the discount rate when making investment decisions in crisis conditions of the modern economy. Bulletin of the Nizhny Novgorod University. N.I. Lobachevsky, 4, 229-231.
Baule, R. (2019). The cost of debt capital revisited. Business Research, 12, 721–753. https://doi.org/10.1007/s40685-018-0070-6
Brady, B., Chang, P., Miu, P., Ozdemir, B., & Schwartz, D. (2006). Discount rate for workout recoveries: an empirical study. SSRN Electronic Journal. Retrieved 10.04.2020 from https://www.fdic.gov/bank/analytical/cfr/bank-research-conference/annual-6th/miup.pdf.
Chatnani, N. N. (2018). Receivables Management and Supply Chain Finance for MSMES: Analysis of TREDS. Academy of Strategic Management Journal, 17(3).
Eckel, L., Fortin, S. & Fischer, K. (2003). The Choice of Discount Rate for External Reporting Purposes: Considerations for Standard Setting. Accounting Forum, 27(1), 28-59. Retrieved 10.04.2020 from SSRN: https://ssrn.com/abstract=376502
Ferguson, I. (2018). Discount rates for corporate forest valuations. Australian Forestry, 81(3), 142-147. https://doi.org/10.1080/00049158.2018.1471788
Fisher, I. (1930). The Theory of Interest. New York, the Macmilan company, 566 p.
Grinblatt, M., & Liu, J. (2008). Debt policy, corporate taxes, and discount rates. Journal of Economic Theory, 141(1), 225-254. https://doi.org/10.1016/j.jet.2007.09.009.
Jung, M., You, S., Chi, S., Yu, I., & Hwang, B.-G. (2018). The Relationship between Unbilled Accounts Receivable and Financial Performance of Construction Contractors. Sustainability, 10, 2679. https://doi.org/10.3390/su10082679
Keynes, J.M. (2010). The Pure Theory Of Money. Kessinger Publishing, LLC, 382 p.
Kwon, K., & Lee, N. (2019). The Association between unbilled receivables and the type of earnings management. Academy of Accounting and Financial Studies Journal, 23(1), 1-10.
Korbutiak, A. H., & Kulbachynska, I.M. (2019). Formation of the mechanism of valuation of the enterprise. Young Scientist, 74, 10. Retrieved 10.04.2020 from http://molodyvcheny.in.ua/files/journal/2019/10/69.pdf.
Kravchuk, T. V., & Vysochyna, A. V. (2018). An analysis of the methods of calculating the discount rate for the fair value adjustment of long-term receivables. Eastern Europe: Economy, Business and Management, 5 (16), 258-261. Retrieved 10.04.2020 from http://srd.pgasa.dp.ua:8080/xmlui/bitstream/handle/123456789/2370/Kravchuk.pdf?sequence=1&isAllowed=y.
Law of Ukraine “On Accounting and Financial Reporting in Ukraine” (1999). Ministry of Finance of Ukraine, 16.07.1999, 996-XIV. Retrieved 10.04.2020 from https://zakon.rada.gov.ua/laws/show/996-14.
Len, V. S., & Glyvenko, V. V. (2020). On discount rates (interest) on long-term debt. Theory and Practice of Scientific Knowledge Development. Proceedings of the IV International Scientific and Practical Conference, Kyiv, February 19-20, Kyiv: ICNID, 13-15. Retrieved 10.04.2020 from http://www.mcnd.ltd.ua/material.html.
Lilford, E., Maybee, B., & Packey, D. (2018). Cost of capital and discount rates in cash flow valuations for resources projects. Resources Policy, 59, 525-531. https://doi.org/10.1016/j.resourpol.2018.09.008
Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, 7, 1, 77–91.
Podkopaev, O. A. (2015). Methods and approaches to calculating beta coefficient for determining the discount rate of financial and real investments. International Journal of Applied and Fundamental Research, 3-2, 245-249. Retrieved 10.04.2020 from https://applied-research.ru/pdf/2015/3-2/6523.pdf.
Ralko, O. S. (2015). Methods of determining the discount rate. Scientific Bulletin of the International Humanities University. Series: Economics and Management, 11, 150-153. Retrieved 10.04.2020 from http://vestnik-econom.mgu.od.ua/journal/2015/11-2015/35.pdf.
Sharp, U., Aleksander, H. & Beily, Dzh. (1998). Investments. M.: INFRA-M, 1028 p.
Shepeliuk, V. A., & Yunatskyi, M. O. (2019). Discounting as a Financial Instrument for the Valuation of Accounting Objects: Implementation Problems in IFRS. KROK University Scientific Notes, 2 (54), 80-84. Retrieved 10.04.2020 from http://snku.krok.edu.ua/index.php/vcheni-zapiski-universitetu-krok/article/view/177/209.
Spitsyna, N. V., Momot, T. V., & Akimova, N. S. (2019). Accounting and analytical support of the system of management of payments for commodity transactions: monograph, Ch.: Publishing House Ivanchenko I.S., 281 p. Retrieved 10.04.2020 from https://cutt.ly/UtGPZcj.
Sumina, E. E. (2015). Problems of calculating the discount rate in domestic accounting. Russian entrepreneurship, 20. Retrieved 10.04.2020 from https://cyberleninka.ru/article/n/problemy-rascheta-stavki-diskontirovaniya-v-otechestvennom-buhgalterskom-uchete
Tereshchenko, О. (2006). Discounting rate: calculation problems and ways to solve them. The world of finance, 4 (9), 144-150. Retrieved 10.04.2020 from http://dspace.tneu.edu.ua/bitstream/316497/26136/1/%D0%A2%D0%95%D0%A0%D0%95%D0%A9%D0%95%D0%9D%D0%9A%D0%9E.pdf.