The paper discusses changes in the book valuation of loans outstanding at banks. As from January 1, 2005, public listed companies (including banks) shall prepare consolidated financial statements pursuant to the International Financial Reporting Standards (IFRSs), which implement new principles, i.a. within the scope of financial instruments valuation. In this regard, efforts have been undertaken in the present paper to analyse the impact of application of the depreciated cost method in the valuation of loans extended by banks on the key items of the banks' financial reports. Particular attention has been paid to the process of determination of loan-related cash flows and to the accounting operations, from the point of view of both the bank and the borrower.

The first part of the paper describes the current legal regulations related to the book valuation of financial instruments. The principles of breakdown of the financial instruments portfolio by individual categories of classification and of the thereon-based selection of the valuation method have been presented. The depreciated cost method of valuation according to the effective interest rate has been described in a greater detail, and the theoretical aspects, which differentiate the method from the historical cost method, have been set forth.

Further, the paper presents a figure-based analysis of the loan value. Loans with fixed and decreasing principal and interest instalments have been discussed. In both cases, the analysis scheme has been first based on the determination of a theoretical repayment scheme of the extended loan by the historical cost method. On this basis, the internal return rate has been determined, which was further used in the valuation of the loan by the depreciated cost method. The analysis has been supplemented with schemes of the loan-related accounting operations, from the point of view of both the bank and the borrower.

The final part of the paper includes conclusions concerning the potential impact of the new loan valuation method on the financial results and capital of the banks. The issue of possible changes in the effective return rate has also been raised. Additionally, the challenges faced by the banks and the problems that financial analysts, bank customers, shareholders and banking supervision authorities may encounter, have been discussed.