Unwinding (IFRS)

The compounding of the residual book value or the update of the present value of the residual book value (English unwinding ) is one of the accounting rules of IAS 39 , which deals with impaired receivables.

According to IAS / IFRS , the agreed interest for receivables that show an impairment (ie for which an EWB was created according to IAS) may not be booked as interest income . Rather, the effective interest rate used to carry out the value adjustment must be recorded and applied to the residual book value by adding interest. The result is that the contractually agreed future interest income is no longer taken into account and accrued, but the (lower) ones determined by adding interest to the residual book value. In the balance sheet there is usually a reduction in the value adjustment account; alternatively, a write-up of the gross claim would also be permitted.

The compounding result of the residual book value is recorded as interest income. This is the difference between the present values of the achievable amounts (collateral plus interest and redemption payments) with unchanged expectations compared to the previous valuation date. Due to the passage of time between the previous and the current reference date on which the new calculation is made, the utilization period is shortened. Because the amounts are discounted over a shorter period of time, the present value of the amounts increases.

Example of an "unwinding" posting based on the period:

Beginning of the year (January 1, 2009)
By "transfer of EWB (income statement)" to "inventory EWB (balance sheet)" 1,000.00
Year end (December 31, 2009)
Per "Inventory EWB (balance sheet)" to "Interest result unwinding (P&L)" 100.00
Per "Addition of EWB (income statement)" to "Existing EWB (balance sheet)" 100.00

The compounding of the residual book value affects the balance sheet (reducing inventory) and affects the income statement (but not loan loss provisions, but net interest income). Reported as an explanation of the net interest income as follows: "The interest income includes income from impaired receivables in the amount of EUR x million (unwinding effects)."

methodology

The calculation and posting of the compounding of the residual book value for impaired receivables is as follows:

The “unwinding” results from the difference in amount between the present values of the recoverable amount of the receivable on the respective key dates.

The following parameters are used for the determination:

IA = borrower drawdown
SV = collateral (market value )
EQ = recovery rate
EBQ = recovery rate
LGD = Default Loss Rate / Value Adjustment Amount
Effective interest rate

The calculation is then as follows:

Unwinding = eff. Interest rate * (IA-LGD) * Number of months / 12

Individual evidence

↑ Jürgen Stauber: Financial instruments in the IFRS financial statements of non-banks . Springer Gabler, Wiesbaden 2012, ISBN 978-3-8349-3377-5 . Here section 3.11.6 Collection of interest income after an impairment.

[1] Jürgen Stauber: Financial instruments in the IFRS financial statements of non-banks . Springer Gabler, Wiesbaden 2012, ISBN 978-3-8349-3377-5 . Here section 3.11.6 Collection of interest income after an impairment.