Present Value - Bonds

Question 1

Term Bonds

Answer 1

Bonds that mature on a single date

Question 2

Serial Bonds

Answer 2

Bonds that mature in installments

Question 3

Debenture

Answer 3

Unsecured bonds

Question 4

Bond Issue costs

Answer 4

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

Question 5

Net proceeds of bond issuance with bond issuance cost

Answer 5

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

Question 6

Sinking fund and Maturities disclosures

Answer 6

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

Question 7

Fair Value Through Profit or Loss (FVTPL)

Answer 7

IFRS refers to the Fair value option

Question 8

Convertible bonds - IFRS

Answer 8

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

Question 9

Retiring bonds

Answer 9

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.

Question 10

Convertible bonds - Market Value Method

Answer 10

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

Question 11

Convertible bonds - IFRS

Answer 11

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.

Question 12

Gain/(Loss) on retirement of debt

Answer 12

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

Question 13

Investment in bonds (assuming no election of FV option)

Answer 13

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.

Question 14

Spreadsheet PV Formula

Answer 14

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