PNC, page-68

How did you come to conclusion that the differences between cost & fair value wouldnt be materially different?

To compare the two with the actual PCP book would be an extremely labour intensive exercise to carry out to come to any conclusion, especially if they have a low average debt per customer with few large single debts.

As i understand it they buy a PCP & revalue it to what they consider to be fair value which would in all cases be higher at the time of purchase otherwise they wouldn't buy it, unless they then discount the value significantly for the time value until expected collection. Which could in theory remove the entire uplift but from the accounts doesn't appear to happen as the biggest increases in revenue tie with the larger PCP purchases.

Amortised cost method however would never increase an PCP on purchase as far as i  can  see in the year of purchase & would always result in a larger revaluation taken to the p&l using fair value in that year.

The disclosed methodology uses historical information, experience etc which would be fully supportable & should be demonstratable using past collected debt.  So it comes down to what provides the most accurate method that is reflected in the accounts.

Amortised cost IMO would almost always undervalue the asset in the accounts if the company was effective in selecting & collecting debt (unless in a significant downturn), which PNC has demonstrated by collecting more cash from a debt than it pays for. So i understand the argument for PNC to not use amortised cost method.

Fair value IMO could under, over or realistically value the asset in accounts,you couldn't be certain until collection occured possibility many years later by then it would be a moot point. However the argument for using fair value should be supportable, the danger is that the economy significantly deteriorates 
the assumptions in the fair value calculation would change resulting in a significant write down (the same could occur with amortised cost but to a lower extent).

So as far as i can see it's a choice between undervaluing the asset (cost) or possibly over valuing or under valuing (fair value) in a normal economy OR  possibly over valuing the asset (cost) or over valuing as asset (fair value)  in  a bad economy  either way leading to a write down.


You could argue the toss until the cows come home if you wanted to.