assume that entity x and entity y each enter into a contractual obligation to pay ca 612327

Non-performance risk [IFRS 13.IE32]

Assume that Entity X and Entity Y each enter into a contractual obligation to pay cash (CU500) to Entity Z in five years. Entity X has a AA credit rating and can borrow at 6%, and Entity Y has a BBB credit rating and can borrow at 12%. Entity X will receive about CU374 in exchange for its promise (the present value of CU500 in five years at 6%). Entity Y will receive about CU284 in exchange for its promise (the present value of CU500 in five years at 12%). The fair value of the liability to each entity (i.e. the proceeds) incorporates that entity”s credit standing.

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