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Bonds > Bond > Flashcards

Bond Flashcards

1
Q

How to calculate amortization for Bonds?(periodic amortization)

A

Divide unamortized discount or premium by the number of periods the bounds are outstanding.

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2
Q

Is straight line method for bond amortization under IFRS allowed?

A

No. GAAP allows straight line method bond amortization but it has not to be material from effective interest method.

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3
Q

What interest do you use to calculate discount or a premium on bond?

A

Yield or market rate. Multiple by face value of a bond.

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4
Q

What interest do we use to calculate interest on bond?

A

Stated by bond rate. It does not change as well.

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5
Q

Where do you record interest expense on bonds interest? Where do we record the paid amount plus discount or minus premium?

A

Interest expense- income statement.

Paid(interest)+discount-premium on balance sheet.

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6
Q

Difference between bond discount and premium.

A

Discount decreases amount received when borrowing money, buying a bond.
Premiums increased amount received when borrowing money.

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7
Q

Do investors( who are lenders of bonds) record discount or premium on bonds?

A

No. They record the net bond proceeds.

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8
Q

When recording interest expense on bond what do borrower and investor recognize?

A

Borrower: expense and reduction discount. Payment is still the same.
Investor: revenue: interest +discount.

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9
Q

What is the difference between straight line method and effective interest rate for bond interest expense?

A

Straight line method is not GAAP but still allowed. IFRS does not permit s-l method. It gives constant amount for carrying amount of a bond. Effective rate method makes carrying amount of the bond be higher at premium than d-l method and lower than s-l method at discount. Unamortized premium or discount will be bigger under effective interest.

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10
Q

Amortization period for bonds , start day for GAAP and IFRS?

A

GAAP amortize bond discount or premium over contractual life (when it was sold) of bond.

IFRS amortize bond discount or premium over expected life of bond.

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11
Q

Do we record conversion features for convertible bonds under GAAP?

A

No. We records the issuance price to bonds with no recognition of conversion feature.

But under IFRS you can. Record bond liability at fair value including the difference for equity part.

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12
Q

The market price of a bond issued at a premium is equal to:

A

the present value of its principle and the present value of al future interest payments, at the market(effective) interest rate.

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13
Q

What are annuities?

A

Periodic payments or receipts at regular intervals such as bond interests and lease rental payments.

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14
Q

Present value of $1?

A

Amount that must be invested now at specific rate so that $1 can be paid or revived in the future like a bond principle

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15
Q

What is lease?

A

Contractual agreement between lessor, who conveys the right to use real or personal property and a lease, who agrees to pay periodic rents over a specified time.

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16
Q

What is operating lease?

A

Lessor collects rent, a lessee used the leased asset and pays periodic rent for such use. No transfer or ownership. It is a revenue for lessor and expense for lessee.

17
Q

Does lessor have to depreciate leased by lessee fixed asset, how?

A

Yes. Depreciate over the asset’s useful life.

18
Q

If lessee gives a no refundable security deposit to lessor, how should both have to account it ?

A

Lessor records as unearned revenue until he considers it as earned revenue. Lessee records prepaid rent expense then expense.

19
Q

How do we treat lease bonus?

A

Deffer it. Record it as unearned income and amortize over the life of lease for lessor and record amortized portion into income.

20
Q

Does lessee record depreciation for leased fixed assets ?

A

If lessee keeps assets at the end- depreciate the asset over the assets useful life, if he/she doesn’t depreciate the leased asset over the lease term.

Lessor still depreciate leased asset under straight line method over assets useful life.

21
Q

What is capital lease?

A

It is financial lease for IFRS. Transfers substantially all of the benefits and risks in ownership of property to the lessee.

22
Q

Does IFRS have different criteria to classify capital lease than GAAP?

A

No. The same. The most important fact is that the ownership will go to lessee. Weird cases: lessee recognizes gains or losses on leased asset, can change the fare value of leasing an asset, only lessee can use those leased assets due to specialized nature.

23
Q

What is criteria for sales type lease? For lessor.

A

Lessee meets one of 4 criteria for capital lease.
No uncertainties about costs from lessor side.
Collectible of lease payments is predictable.

24
Q

What is the difference between sales type and direct type lease for lessor?

A

Sales type: FV of lease>BV of lease at inception the difference gives profit or loss.
Except dealer or manufacturer which can not realize a profit or loss under GAAP but can be under IFRS.
Direct type: FV=BV. No profit or Loss.
Under sales and direct type transfer substantially all of ownership.

25
Q

How to calculate the minimum lease payments?

A

It is a periodic payment *by PV of annuity due or PV of an annuity ordinary.

26
Q

So when you calculating minimum lease payment consent lower interest rate (not stated rate) for PV of annuity calculations.

A

Be attentive on it.

27
Q

Bond indenture

A

The contract between the issuer(borrower) and bond holder(investor).

28
Q

Face value of bond.

A

Stated rate. Coupon rate. Nominal rate. Is the interest paid to investors.

29
Q

Market interest rate

A

Effective rate. The rate of interest actually earned by the bond holder and is the rate for comparable contracts on the date the bond

30
Q

Discount on bond.

A

When market rate >the stated rate. To make up for the lower return being provided.

31
Q

Premium on bond.

A

Market rate is lower than the stated rate. Will pay more due to the higher return offered.

32
Q

What are debentures?

A

Unsecured bonds.

33
Q

Collateral trust bonds?

A

Secured bonds.

34
Q

What is the difference between detachable warrants and non detachable?

A

No detachable must be converted at the same time as the convertible bond is.
Detachable is a separate instrument. Can be bought and exercise separately.

35
Q

Where do we record gain when redeeming bonds?

A

Continuing operations.

Bonds (1 decks)

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