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- at which the financial asset or financial liability is measured at initial recognition,
- minus principal repayments,
- plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, and
- minus any reduction (directly or through the use of an allowance account) for impairment or un-collectability.
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In view of the definition of the amortised cost, the following formula is used for its calculation:
The cumulative total amortisation TA(tn) of payment date tn is defined by
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The following annuity loan is considered: Initially, there is also a charge of 5000 USD. Hence, the first cash flows for the deal are as follows: Applying the calculation method described, the calculation of the amortised cost of the deal starts as follows: |