Non-Current Liabilities Flashcards
Premium Bond (PB)
Coupon > YTM and reported on the B/S at a value greater than par
Premium gets amortized back towards face value over the life of the bond
Discount Bond (DB)
YTM > Coupon and reported on the B/S at a value less than par
Discount gets amortized up towards face value over the life of the bond
Effective interest rate method
Interest expense (IE) = BV x YTM
For a PB the IE < coupon payment and the difference between the two is the amortization of the premium
For a PB the C < IE payment and the difference between the two is the amortization of the discount
De-recognition of debt
Redemption before maturity = a G or L depending on BV >/< the redemption price
GAAP - unamortized bond issuances costs are written off and increase loss or reduce gain
IFRS - no write off necessary b/c issuance costs are included in carrying value
Capital Lease Accounting (Lessee)
Lease expense consists of depreciation and interest on the loan
Lease payment is CFO negative (interest) and CFF negative (principal reduction)
Capital Lease Accounting (Lessor)
Lease receivable is created at the beginning of lease equal to the PV of PMTs
PMTs are CFO + and CFI +
Sales-type lease gross profit is recognized at beginning and interest over the life of the lease
Direct financing lease only has interest income
Pension liability/asset
Net pension liability = Defined benefit plans assets < estimated pension obligation
Changes in net pension A/Lis found in comprehensive income
IFRS & GAAP Treatment
IFRS pension expense includes services costs (including past), interest income or expense on the beginning plan - remeasurements to to CI
GAAP pension expense includes service costs, interest income/expense on the expected return on plan assets - past costs and remeasurements are in comprehensive income
Incorrect answers
IFRS doesn’t make distinction between sales type and direct financing leases, so if you see a sales type the company has to be under U.S. GAAP
The coupon payment is a CFO outflow
