Scribd Logo
Upload

Welcome to Scribd!

  • 22 views

    Review of Bonds

    Uploaded by

    Queeny Mae Cantre Reuta
    Bonds are a contract between an issuer and investor where the issuer agrees to pay a specified sum of money at a future date. Bonds have different terms and can be initially measured at fair value or amortized cost using the effective interest method. The effective interest method uses the rate that exactly discounts estimated future cash payments through the expected life of the bonds to calculate interest expense each period. This rate considers whether the bonds were sold at a discount, premium, or face value.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Review of Bonds

    Uploaded by

    Queeny Mae Cantre Reuta
    22 views1 page
    Bonds are a contract between an issuer and investor where the issuer agrees to pay a specified sum of money at a future date. Bonds have different terms and can be initially measured at fair value or amortized cost using the effective interest method. The effective interest method uses the rate that exactly discounts estimated future cash payments through the expected life of the bonds to calculate interest expense each period. This rate considers whether the bonds were sold at a discount, premium, or face value.

    Original Description:

    Review of bonds

    Original Title

    Review-of-Bonds

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Bonds are a contract between an issuer and investor where the issuer agrees to pay a specified sum of money at a future date. Bonds have different terms and can be initially measured at fair value or amortized cost using the effective interest method. The effective interest method uses the rate that exactly discounts estimated future cash payments through the expected life of the bonds to calculate interest expense each period. This rate considers whether the bonds were sold at a discount, premium, or face value.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    22 views1 page

    Review of Bonds

    Uploaded by

    Queeny Mae Cantre Reuta
    Bonds are a contract between an issuer and investor where the issuer agrees to pay a specified sum of money at a future date. Bonds have different terms and can be initially measured at fair value or amortized cost using the effective interest method. The effective interest method uses the rate that exactly discounts estimated future cash payments through the expected life of the bonds to calculate interest expense each period. This rate considers whether the bonds were sold at a discount, premium, or face value.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 1

    Summary :

    BONDS is a contract between the issuer and the investor


    Pay specified sum of money at a determinable future date:
    The different terms of bonds.
    Measurement
    Bond not designated of FVPL shall be measured initially at FV minus transaction cost that are
    directly attributable to the issue of the bonds payable.

    Bond shall be deducted from the fair value or issue price of the bonds payable in measuring
    initially the bonds payable.
    However if the bonds are designated and accounted for if FV PL “ bond issue costs are treated
    as expense immediately.

    PFRS 9 provides that after initial recognition ,bonds payable shall be measured either

    Amortized cost using effective interest method.


    At FVPL .

    EFFECTIVE INTEREST METHOD

    Nominal rate or stated rate appearing on the face of the bonds


    Effective rate – actual interest incurred on the bond issue
    The rate that exactly discounts estimated cash future payments through the expected life of the
    bonds payable or when approximate, a shorter period to the net carrying amount of the bonds
    payable.
    The effective rate is also known as yield or market rate.

    If the bonds are sold at face amount, the nominal rate and effective rate the same.
    If the bonds are sold at a discount the effective is higher than nominal rate.
    If the bonds are sold at a premium the effective is lower than nominal rate.

    Effective interest method of amortizing discount and premium on bonds payable.


    Effective interest method or simply interest method or scientific method recognizes two kinds of
    interest rate nominal rate and effective rate.

    The annual amortization of premium or discount is the difference between effective interest
    expense and nominal interest expense.

    How will you compute:

    The interest expense is computed by multiplying the CA of the bonds payable at the beginning
    of the year by the effective rate.

    The nominal interest expense is computed by multiplying the Face Amount of the bonds
    payable by the nominal rate.

    The effective interest method provides for an increasing of discount amortization and increasing
    amount of interest expense.
    The effective interest method provides for an increasing amount premium amortization but a
    decreasing amount of interest expense.

    You might also like