F5 Bonds Flashcards
Bond issue costs
GAAP versus IFRS
IFRS - BIC are deducted from the carrying value of the liability and amortized using effective interest method
GAAP- BIC are recorded as an asset and amortized using straight line method
amount used to compute gain or loss on retirement of bonds
carrying amount of the bond and the pro rata portion of the bond issue cost
carrying amount = 500,000
6,000 x years left/total years = (4,000)
= 496,000
x portion retired
the excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a
GAIN in continuing operations (retirement price less carrying amount of old debt)
unless unusual and infrequent - then extraordinary for GAAP only. IFRS does not permit extraordinary items
What is associated with Convertible debt securities?
the interest rate on convertible debt is generally lower than nonconvertible debt because of the value of the conversion feature
What is reported as interest expense?
When a discount on a bond or note is amortized, the discount amortization increases interest expense for the period.
bonds that will NOT mature on same date?
serial bonds - mature in installments
What characterizes convertible debt under US GAAP
because the conversion feature cannot be sold or transferred separate from the bonds themselves, NO VALUE is assigned to the conversion feature when the bonds are issued.
Warrants only method
versus market value method
warrants only used if only fair value of warrants is known.
market value is used if both fair value of warrants and bonds is known.
Convertible debt under IFRS
Under IFRS, both a liability (bond) and an equity component (conversion feature) should be recognized when convertible bonds are issued. The bond liability is valued at fair value, with the difference between the actual proceeds received and the fair value of the bond liability recorded as a component of equity
interest payable of bond is calculated by
face value of the bond at the beginning of the period and multiply this amount by the contractual interest rate.
Under US GAAP, what should be deferred and amortized over term of bonds?
Under U.S. GAAP, all costs associated with the issuance of bonds should be capitalized and amortized over the outstanding term of the bonds since issue.
Capitalized costs include: printing, legal, accountants, underwriting
To determine the market price of a bond..
the pv of the principal is added to the PV of all interest payments, using the market rate
