Bonds/Troubled Debt

Question 1

Accounting of compound instruments - with both equity and debt components

Answer 1

Initially measured at fair value and subsequently measured at:

1. amortized cost using the effective interest method
2. option to elect FVTPL - liability is revalued at FV at the end of the period and resulting gain/loss to IS

Under IFRS, this must be separated into their debt and equity components

Question 2

How is the liability component recorded?

Answer 2

At fair value and the residual value is assigned to the equity component

Question 3

Compound instruments presentation

Answer 3

liability component - to liability section

equity component - to equity section

Question 4

Under IFRS, what constitutes extinguishment of debt?

Answer 4

Modification of debt, exchange of original liability with a new financial liability with substantially different terms
Then a new financial liability is recognized

Question 5

In IFRS, how are bond issue cost amortized?

Premium or discount?

Answer 5

Effective interest method for both

STRAIGHT LINE IS PROHIBITED !!!