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Flashcards in Present Value - Bonds Deck (14):
1

Term Bonds

Bonds that mature on a single date

2

Serial Bonds

Bonds that mature in installments

3

Debenture

Unsecured bonds

4

Bond Issue costs

are treated as deferred charges and amortized on a straight-line basis over the life of the bond.
Normal Debit Balance, and shown in the other asset section on the BS

5

Net proceeds of bond issuance with bond issuance cost

Discount the bonds (find PV of bond and interest) at the market rate of interest and then deduct bond issuance costs.

6

Sinking fund and Maturities disclosures

The combined aggregate of maturities and sinking fund requirements detailed by year should be disclosed for 5 years after the BS date.

7

Fair Value Through Profit or Loss (FVTPL)

IFRS refers to the Fair value option

8

Convertible bonds - IFRS

must be seperated into their components of debt and equity. (unlike in GAAP where they are not seperated)

9

Retiring bonds

The bonds payable at face value, the unamortized discount, and the unamortized bond issue costs must be taken off the books. Cash is credited for the amount paid (93% x $1,000,000 = $930,000), and the difference is the gain or loss on retirement.

10

Convertible bonds - Market Value Method

Dr. Convertible bond at face
Dr. premium or Cr Discount
Cr. C/S at par
Cr. APIC (increase by the difference of the market value on C/S $25 and par value $5 on C/S: 50,000 shares x (25-5)=1,000,000

11

Convertible bonds - IFRS

convertible debt must be separated into its debt and equity components. To do this, discount the bond at market interest rates as in US GAAP. The liability component is the discounted amount and the equity component is the residual of the cash received less the discounted amount.

separated into debt and equity components with the liability component recorded at fair value and the residual assigned to the equity component.

12

Gain/(Loss) on retirement of debt

The gain/loss from retirement of debt is the difference between cash paid to retire the debt and the debts carrying amount.

13

Investment in bonds (assuming no election of FV option)

Carry the investment bonds in 1 of 3 categories:
Traiding - mark to market and amort schd.
Avail for sale - mark to market & amort sch.
Held to maturity - Use the CV on the amort schedule (do not mark to market) & amort schedule.

14

Spreadsheet PV Formula

=PV(int,nper, pmt, [FV],[Type])
nper= number of periods
pmt = interest payment
FV= future value
Type= 0 ordinary annuity 1 Annuity due