Question

The Procter & Gamble Company (P&G)

The financial statements of P&G are presented in Appendix B. The company’s complete annual report, including the notes to the financial statements, is available online.

Instructions (a) Examining each item in P&G’s balance sheet, identify those items that require present value, discounting, or interest computations in establishing the amount reported. (The accompanying notes are an additional source for this information.)

(b) (1) What interest rates are disclosed by P&G as being used to compute interest and present values?

(2) Why are there so many different interest rates applied to P&G’s financial statement elements (assets, liabilities, revenues, and expenses)?

Short answer

The financial items are assets like pension assets. Credit risk and interest rate curves are used.

Step-by-step solution

Financial statement items

The financial statement items requiring present value, discounting, and interest computation is certain assets like pensions, leases, liabilities, revenues, and expenses.

Interest rate used

1 Credit risk and interest rate curves are used by the P&G to compute various interest and present values in notes to accounts

2 There are many interest rates applied to various balance sheets and income statement items. All items have different natures; some require compound interest, some require present value factor, and some require future value factor.