# Discount factor and features of its application

**Coefficient value for an accountant**

The discount rate is a reflection of the most important mechanism that allows you to submit a reliable financial position of a business entity. And the state of finances in an enterprise is the most difficult problem faced by an accountant when forming his statements. For example, in the Western accounting system, the calculation of the discount rate is a mandatory part of any financial statement.

**Essence of the coefficient**

The first mention of discounting in domestic accounting was met in PBU 19/02 when evaluating securities and loans. In this case, the discount rate is indicated only in the explanatory note, and the display of this information in the account is not allowed. A similar indicator in the financial statements is the accounting of the difference between the initial and nominal value of securities,for which their market value cannot be determined. This difference can be attributed to financial results. The calculated discount rate affects the carrying amount of certain elements of accounting, which will lead to changes in the financial results of a business entity. The essence of this economic indicator is to determine the difference between the current value of the planned financial flows from their nominal counterpart. From the theory of the value of money, it should be noted that the amounts paid in different periods of time may have a different price. The reasons for this occurrence are the following:

- the risk of non-receipt;

- availability of alternatives in investments.

**Calculation formula**

The discount factor is calculated by the following formula:

BS = TC / (1 + i) n,

where BS is the future value;

TS - current value;

i - discount rate;

n is the number of periods.

**Concept of interest rate**

When calculating discounting, other indicators associated with it are often enough.For example, the interest rate is an important economic element that significantly affects the results of all the above calculations. The mentioned indicator is one of the most difficult in discounting. The following factors influence its formation:

- various companies;
- nature of operations;
- different time intervals;
- solution of various problems.

For example, if there is an asset with a current value of 1 million rubles, with a maturity of 3 years and at a rate of 20%, the future value will increase by 578,704 thousand rubles; and at the rate of 30% - to 455.166 thousand rubles.

**Universal rules for the application of the coefficient**

Despite all the difficulties in calculating the discount rate, there are basic rules in IFRS that can be used in almost all situations:

- discounting is not carried out in the presence of insignificant influence of the value of money at different points in time;

- the resulting percentage should not be accrued evenly, but based on the optimal interest rate.