fair value and discounted rate

[rfebrian91]

Dear Masters,

I wanna ask about how to measure fair value of monetary asset with discounted cashflow method. In chase if i have monetary asset in foreign currency then i convert it to functional currency, what's discounted rate should be used to measure present value of the asset?

and where i can find the written rules which tell about it?

Thank you

 

[bklynboy]

From what you say, the asset is cash - I don't follow why you want to PV cash?

DCF is usually used when you are trying to put price on a business or project and would use a discount rate such as the company's WACC. If you have cash then you know its Fair Value - what are you trying to do here?

 

[Counterofbeans]

Are you using the Remeasurement method of translating your subsidiary financial statements or something?

Monetary assets are the easy part. It's the nonmonetary assets that are the turd, but in translation, as well as sometimes needing a DCF.

I'm with bklynboy---not sure why you'd want to use DCF for a monetary asset. Those are defined as cash and those assets which will be resolved in cash, like AR, AP, etc.

In general, for a monetary asset, just use the rate that exists at month end and call it a day.

 

[rfebrian91]

fair value

Are you using the Remeasurement method of translating your subsidiary financial statements or something?

Monetary assets are the easy part. It's the nonmonetary assets that are the turd, but in translation, as well as sometimes needing a DCF.

I'm with bklynboy---not sure why you'd want to use DCF for a monetary asset. Those are defined as cash and those assets which will be resolved in cash, like AR, AP, etc.

In general, for a monetary asset, just use the rate that exists at month end and call it a day.

It just to disclose estimated fair value of monetary assets on notes to financial position. I have 2 method to measure the fair value. First, I use Cost Method to measure current assets & current liability. Second, i use DCF to measure non-current asset & non-current liability, for loan i use cost method if the interest of the loan is variable with assumption variable rate will follow market value.

The problem is when i should measure fair value in more than one currency.I will give the illustration
For example:

-Other receivable-non current $ 50 equal 500,000 rupiah (exchange rate 10,000 rupiah/USD)

-Other assets-non current SGD 100 equal 800,000 rupiah (exchange rate 8000 rupiah/SGD)

every end of month assets will be converted to rupiah (fuctional currency in my country) with end of month exchange rate. When i want to calculate the present value of the assets, which discount rate should be i used? IDR discount rate (Rupiah) or the original currency discount rate (USD/SGD). i use lending rate as discount rate which i get from bloomberg.com

 

[bklynboy]

I would use a discount rate that is appropriate for the functional currency taking into account the risk profile of the asset - this would already consider the foreign exchange risk the asset is subject to. The FX is just for translation.