Canada Discount rate for long term loan

[Faisal Ahmed]

Hi,

My company paid an amount as a long term loan for 5 years. Can you please advice that how to find which discount rate should I use to discount the loan?

Thanks

 

[Dave In Capital]

It's Canada, so GAAP would apply. I refer to FASB Accounting Principles Board (APB) Opinion 21 Interest on Receivables and Payables. Paragraphs 13 & 14:

FASB APB 21

Above all considerations when determining the appropriate discount rate for the present value of cash flows is the appearance of an arm's length transaction.

 

[Praz Finpoint]

As a base minimum it is what a bank would offer a loan of the similar amount, period and terms to the borrower, had the borrower gone to a bank. If the borrower can obtain a quote from the bank on the interest rate the borrower would pay, you could consider using this as the base interest rate.