Top Excel Formulas for IFRS

Posted in:IFRS Accounting

Posted by:Silvia M.

10

This is another useful tip I would like to give you. With these formulas, you can really speed up
yourIFRS accounting process, especially when dealing with sophisticated calculations. So
lets start.

Top Financial Formula #1: IRR

What is IRR?
IRR formula calculates Internal Rate of Return for series of cash flows. The cash flows must be
expressed as numbers or values. And, they must occur in regular intervalsdaily, weekly,
monthly, annually, whatever you need.
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What is internal rate of return? Simply speaking, it is an interest that you pay on initial loan (which
is a negative value) with regular installments in later periods (which are positive values).
Installments do not need to be the same in size, though.

Where do you need to apply IRR?

Certainly, if you need to perform valuation of financial assets or liabilities in line

with IAS 39/IFRS 9, you need to calculate effective interest ratethats exactly internal rate of
return for cash flows from your financial instrument.
Also, lease accounting in line with IAS 17 requires actuarial method to be applied. Sure you have
to
use IRR there. If you wish to read more about internal rate of return, please refer to our
article How to calculate interest rate implicit in the lease.

Top Financial Formula #2: NPV

What is NPV?
NPV calculates Net Present Value of an investment by using predetermined discount rate and
series of cash flows: investment, future payments (negative values) and future receipts
(positive values).
Net Present Value is a difference between the present value (or discounted) cash inflows and the
present value (discounted) cash outflows of certain project. So, again put more simply, it is your
return on investment expressed in todays money.

Where do you apply NPV?

Net Present Value is a great formula for computation of potential profit or loss from the project
and thus is used very widely for project appraisals.
In IFRS, NPV is used broadly in value in use calculation according to IAS 36. As you might know,
value in use is critical for determining assets impairment loss.
Also, NPV is sometimes used in calculation of amount of provision according to IAS 37. When
you have some onerous long-term contract, or some long-term restructuring, then NPV of cash
flows from that restructuring or contract can well serve as the amount of your provision.

Top Financial Formula #3: YIELD

YIELD calculates on a security that pays periodic interestfor example, bonds or treasury bills. If
an investor wants to know his real rate of return on some bond, then he usually looks for yield.
Again a little simplification: yield is internal rate of return of a series of cash flows from the
security initial purchasing price, periodic coupon or interest payments and redemption price
(how much investor gets from the issuer of bond at its maturity).

Where do you apply YIELD?

YIELD formula widely applies mainly for valuation of fixed term securities in line
with IAS 39 / IFRS 9. There are so many securities not publicly traded on the stock exchange and
their fair value must be estimated by extrapolation along yield curve.
Also, when you are trying to determine appropriate discount rate for valuation of liabilities from
employee benefits in line with IAS 19, then it is quite handy to know how to apply YIELD formula
and extrapolate along yield curve.