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Discount Rates
The discount rate significantly impacts your lease liability. FRS 102 permits three approaches.
Rate Options
FRS 102 permits:
| Rate | Definition | Best For |
|---|---|---|
| OBR | Rate to borrow total undiscounted payments | SMEs |
| IBR | Rate to borrow with similar security | Larger entities |
| Implicit | Rate causing PV to equal fair value | Rarely used |
OBR Calculation
OBR = SONIA + Credit Spread
FRS 102 Reference: FRS 102.20.51-20.52
OBR Calculation
SONIA Term Rate: 4.50%
Credit Profile: Average SME
Credit Spread: +2.25%
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OBR: 6.75%
Credit Spreads
Based on your company's credit profile:
| Profile | Spread | Typical OBR |
|---|---|---|
| Strong | +1.25% | ~5.75% |
| Average SME | +2.25% | ~6.75% |
| Higher Risk | +3.50% | ~8.00% |