Debt instruments (other than those wholly repayble or recievable within one year), including loans and other accounts recievable and payable, are initially measured at present value of the future cash flows and subsequently at amortised cost using the effective interest method.
Debt instruments that are payable and recievable within one year, typically trade debtors and creditors, are mesured, initially and subsequently at the undiscounted amount of the cash or other consideration expected to be paid or received. However, if the arrangements of a short term instrument constitue a finaciang transaction, like the payment of trade debt defferd beyond the normal business terms or financied at a rate of interest that is not a market rate or in the case of an out-right short-term loan not at market rate, the financial asset or liability is measured, initially, at the present value of the future cash flow discounted at a maret rate of interest for a similar debt instrument and subsequently at amortised cost.
Financial assests that are measured at cost and amortised costs are assessed at the end of each reporting period for the objective evidence of impairment. If objective evidence of impariment is found, an impairment loss is recognised in the Profit and Loss Account.
For finanical assets measured at amortised cost, the impariment loss is measured at the difference between an asset’s carrying amount and the present value of estimated cash flows discounted at the asset’s orginal effective interest rate. If a financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.