NON-CURRENT LIABILITIES (PAS 39)

Non-current Liabilities all liabilities not classified as current are classified as

non-current. Examples of non-current liabilities are: ! $! 3. 4. 5. . Bon"s Pa#able Lon%-ter& Notes Pa#able Non-current portion of long-term debt Finance lease liability Deferred tax liability !ong-term deferred re"enue

A! BON'S PA(ABLE
Bon" a formal# unconditional promise# made under seal# to pay a specified sum of
money at a determinable future date# and to ma$e periodic interest payment at a stated rate until t%e principal sum is paid. &. (. 3. 4. 5. . +. ,. -. &.. &&. 'ontract of debt Issuer borro)er of funds Investor/Buyer/Bondholder lender of funds Bond indenture a document )%ic% s%o)s in detail t%e terms of t%e loan and t%e rig%ts and duties of t%e borro)er and ot%er parties to t%e contract Bond certificate represents a portion of t%e total loan Trustee %olds title to property gi"en as security for t%e loan* acts as representati"e of t%e bond%olders. Registrar or Disbursing Agent borro)er deposits interest and principal payments )it% t%e disbursing agent )%o t%en distributes funds to t%e bond%olders. Underwriter a firm )%ic% assumes responsibility for selling t%e bonds to in"estors. Payment of interest semi-annually or annually Bond issue cost printing and engra"ing cost# legal and accounting fees# commission# registration fees# promotional cost and ot%er similar c%arges. Treasury bonds company/s o)n bonds originally issued and reac0uired but not canceled.

CONTENTS O) BON' IN'ENTURE

&. (. 3. 4. 5. . '%aracteristics of t%e bonds 1aturity date and pro"isions for repayment 2eriod of grace allo)ed to issuing company Establis%ment of a sin$ing fund and t%e periodic deposit t%erein Deposit to co"er interest payments 2ro"isions affecting mortgaged property# suc% as taxes# insurance co"erage# collection of interest or di"idends on collaterals +. 3ccess to corporate boo$s and records of trustee ,. 'ertification of bonds by trustee -. 4e0uired debt to e0uity ratio &.. 1inimum )or$ing capital to be maintained

T(PES O) BON'S
&. (. 3. 4. 5. . +. ,. -. &.. &&. &(. &3. Term bonds bonds )it% a single date of maturity Serial bonds bonds )it% a series of maturity dates ortgage bonds secured by mortgage on real properties !ollateral trust bonds secured by stoc$s and bonds of ot%er corporations. Debenture bonds bonds )it%out collateral security Registered bonds re0uire t%e registration of t%e name of t%e bond%olders on t%e boo$s of t%e corporation. !ou"on or bearer bonds t%e name of t%e bond%older is not recorded on t%e company boo$s. !onvertible bonds bonds t%at can be exc%anged for s%ares of capital stoc$ of t%e issuing company. !ommodity#bac$ed bonds or asset#lin$ed bonds % bonds t%at are redeemed in terms of commodities suc% as oil or precious metals. !allable bonds bonds )%ic% may be called in for redemption prior to t%e maturity date. &uaranteed bonds bonds issued )%ereby anot%er party promises to ma$e payment if t%e borro)ing company fails to do so. 'un$ bonds %ig% ris$# %ig%-yield bonds issued by enterprises t%at are %ea"ily indebted or )ea$ in financial condition (ero interest bonds or Dee" discount bonds pays no interest* offers a return in t%e form of 5deep discount/ from t%e face amount.

*EASURE*ENT O) BON'S PA(ABLE

3fter initial recognition# bonds payable s%all be measured at amorti6ed cost using t%e effecti"e interest met%od in accordance )it% 237 3-.

A*ORTI+ATION *ET,O' 2remium and Discount on 8onds 2ayable - E--ecti.e Interest *et/o" 9based
on 237 Nos. 3( and 3-: 8ond ;ssue 'ost 0 E--ecti.e Interest *et/o" 9based on 237 No. 3-:

T1O T(PES O) RATES

&. Nominal<7tated<'ontract<'oupon 4ate rate appearing on t%e face of t%e bond certificate (. Effecti"e<=ield<1ar$et depends on t%e 0uality of t%e bonds as e"idenced by t%e financial strengt% of t%e business and its earnings prospects.

ISSUANCE O) BON'S AT A PRE*IU*

&. (. 3. 4. 5. 7ales price is more t%an t%e face "alue of t%e bonds. 8ond premium is not treated as an outrig%t gain. Effecti"e rate of interest is less t%an t%e nominal rate of interest. 8ond premium is amorti6ed o"er t%e life of t%e bond and cre"ite" to Interest Expense using t%e e--ecti.e interest &et/o". >namorti6ed premium is presented on t%e notes to balance s%eet as addition to 8onds 2ayable. Premium on Bonds Payable is an ad?unct account.

ISSUANCE O) BON'S AT A 'ISCOUNT

&. (. 3. 4. 5. 7ales price is less t%an t%e face "alue of t%e bonds. 8ond discount is not treated as an outrig%t loss. Effecti"e rate of interest is %ig%er t%an t%e nominal rate of interest. 8ond discount is amorti6ed o"er t%e life of t%e bond and "ebite" to Interest Expense using t%e e--ecti.e interest &et/o". >namorti6ed discount is presented on t%e notes to balance s%eet as deduction from 8onds 2ayable. Discount on Bonds Payable is a contra-account.

RECOR'IN2 INTEREST ON BON'S

&. (. 3. 2ayment of interest during t%e year 3ccrual of interest at t%e end of t%e accounting period 3morti6ation of premium or discount on bonds payable and bond issue cost

BON' ISSUE COST

&. Definition: @%ese are transaction costs or incremental costs t%at are directly attributable to t%e issue of bonds payable suc% as printing and engra"ing costs# legal and accounting fee# registration fee# commission paid to agents and under)riters. Not treated as outrig%t expense but amorti6ed o"er t%e life of t%e bond using t%e e--ecti.e interest &et/o" 9237 No. 3-:. 'oncei"ed as cost of borro)ing and t%erefore increases interest expense. 3morti6ation is c%arged to Interest Expense >namorti6ed bond issue cost is presented in t%e notes to 8alance 7%eet as a "e"uction from 8onds 2ayable 9contra-account: toget%er )it% Discount on Bonds Payable. >nder t%e effecti"e interest met%od of amorti6ation# bond issue cost must be AlumpedB )it% t%e discount on bonds payable and AnettedB against t%e premium on bonds payable.

(. 3. 4. 5. .

ISSUANCE O) BON'S BET1EEN INTEREST 'ATES

&. (. 3. 4. Cn issuance date# compute and record t%e interest t%at %as accrued since t%e last interest payment date. 3ccrued interest is paid by t%e buyer or in"estor. 3ccrued interest AsoldB is cre"ite" to Interest Expense. 7ubse0uent interests are recorded in t%e usual manner e"ery interest payment date.

BON' RETIRE*ENT ON *ATURIT( 'ATE

&. (. 3. 4. No accounting problem is encountered 8onds 2ayable is debited at maturity date to cancel t%e liability. 3ccrued interest on t%e date of maturity is paid by a c%arge to Interest Expense. ;f t%e bond payable is due to be settled )it%in &( mont%s from balance s%eet date# t%e bond payable is reclassified as current liability. 3ny related sin$ing fund account s%all also be reclassified as current asset. @%e classification of a cas% fund s%all parallel t%e classification applied to t%e related liability.

BON' RETIRE*ENT PRIOR TO *ATURIT( 'ATE

&. (. 8ond may be cancelled and permanently retired 8ond may be %eld in treasury for future re-issuance )%en t%e need for funds arises.

STEPS IN3OL3E' IN T,E PER*ANENT RETIRE*ENT O) BON'S PRIOR TO *ATURIT( 'ATE

&. (. 3. 4. 5. . 3morti6e t%e bond premium or discount and issue cost up to date of retirement. Determine balance of bond premium or discount and issue cost. Determine accrued interest to date of retirement. 'ompute total cas% payment. @otal cas% payment D retirement price plus accrued interest. @%e retirement price is a certain percentage 9E: of t%e face "alue of t%e bonds. Determine t%e boo$ "alue of t%e bonds being retired. 8oo$ Falue D Face "alue of bonds 4lus unamorti6ed premium or &inus unamorti6ed discount and issue cost. 'ompute for gain or loss on bond retirement. Gain or loss D difference bet)een retirement price and boo$ "alue of t%e bonds being retired. ;f retirement price is greater t%an 95: boo$ "alue of t%e bonds# t%ere is loss.

;f retirement price is less t%an 96: boo$ "alue of t%e bonds# t%ere is %ain.

+. ,. -.

'ancel t%e bond liability 98onds 2ayable: toget%er )it% t%e unamorti6ed premium or discount and issue cost. 3ccrued interest is "ebite" to Interest Expense. Gain on Early Retirement of Bonds is presented as Ot/er Inco&e. Loss on Early Retirement of Bonds is presented as Ot/er E74ense.

TREASUR( BON'
&. (. 3. 4. 5. Definition: 'ompany/s o)n bond originally issued and reac0uired but not cancelled. 7ame accounting procedures accorded to a formal retirement of bonds prior to maturity date. Debited to Treasury Bonds at face "alue and any related unamorti6ed premium or discount or issue cost s%ould be cancelled. 3ny accrued interest paid is c/ar%e" to Interest Expense. Gain or loss on ac0uisition of treasury bonds D difference bet)een ac0uisition cost and boo$ "alue of t%e bonds. ;f reac0uisition price is less 96: t%an t%e boo$ "alue# t%ere is %ain. ;f reac0uisition price is greater 95: t%an t%e boo$ "alue# t%ere is loss. @%e premium or discount on t%e re-issue of t%e treasury bonds s%ould be amorti6ed o"er t%e remaining life of t%e treasury bonds. @reasury bonds not subse0uently sold are cancelled against t%e Bonds Payable account upon maturity. @reasury bonds are presented as a deduction from 8onds 2ayable to get t%e amount of 8onds 2ayable ;ssued and Cutstanding.

. +. ,.

BON'S ISSUE' 1IT, S,ARE 1ARRANTS

&. (. 2urpose is to promote sale of bonds 8ond%olders are gi"en t%e rig%t to ac0uire s%ares of t%e issuing company at a specified price at some future time. 3. @)o securities are sold t%e bonds and t%e s%are )arrants. 4. 7%are )arrants may be detac%able or non detac%able. Detac%able )arrants can be traded separately )%ile non detac%able )arrants cannot be traded separately. 5. 237 3( mandates t%at t%e issuer of a compound financial instrument s%all classify t%e liability and e0uity components separately. @%ere is no need to differentiate )%et%er t%e )arrant is detac%able or not. . ;ssue price from sale of bonds is allocated bet)een t%e bonds and t%e )arrants. +. 8onds are assigned an amount e0ual to t%e mar$et "alue of t%e bonds ex)arrants# regardless of t%e mar$et "alue of t%e )arrants. ,. 4esidual amount or remainder of t%e issue price is allocated to t%e )arrants. -. ;f mar$et "alue of bonds ex-)arrant is NC@ gi"en# amount allocated to t%e bonds D present "alue of principal bond liability 2!>7 present "alue of future interest payments using effecti"e or mar$et interest rate for similar bonds )it%out t%e )arrants. &.. @%e residual amount or remainder of t%e issue price s%all be allocated to t%e s%are )arrants.

CON3ERTIBLE BON'S
&. (. 3. 4. 5. . +. Definition: 8onds )%ic% gi"e t%e %olders t%ereof t%e rig%t to con"ert t%eir bond%oldings into s%are capital or ot%er securities of t%e issuing company )it%in a specified period of time. 2remium or discount on con"ertible bonds are amorti6ed up to t%e maturity date of t%e bonds instead of t%e con"ersion date. 'on"ertible bonds are treated as compound financial liability. ;ssue price is allocated bet)een t%e 8onds 2ayable and t%e con"ersion pri"ilege. 8onds are assigned an amount e0ual to t%e mar$et "alue of t%e bonds H;@IC>@ t%e con"ersion pri"ilege. ;n t%e absence of mar$et "alue# amount allocated to t%e bonds D present "alue of t%e bond liability 2!>7 present "alue of future interest payments using t%e effecti"e interest rate for similar bonds )it%out con"ersion pri"ilege. @%e residual amount or remainder of t%e issue price s%all be allocated to t%e con"ersion pri"ilege or e0uity component.

CON3ERSION O) BON'S
&. 3mount of 7%are 'apital issued is e0ual to t%e boo8 .alue of t%e bonds 9tantamount to capitali6ation of bonds:. ;n case s%ares are issued for outstanding liability# t%e amount of t%e liability set off s%all be t%e measure for recording. 8oo$ Falue of 8onds D Face "alue plus accrued interest if not paid# plus unamorti6ed premium or minus unamorti6ed discount and bond issue cost. 'on"ersion of bonds is treated as premature retirement of bonds but no %ain or loss is reco%ni9e"! @%e amorti6ation of discount and issue cost or premium up to t%e date of con"ersion s%ould be recorded. @%e face "alue of t%e con"erted bonds s%ould be cancelled toget%er )it% t%e related unamorti6ed premium or discount and issue cost. ;f only a 4ortion of t%e bonds is con"erted# t%e unamorti6ed premium or discount and issue cost balance s%ould be cancelled 4ro4ortionatel#. 'on"ersion is normally at an interest date. H%en con"ersion is done at a date ot%er t%an t%e interest payment date# t%e accrued interest up to t%e date of con"ersion is ordinarily paid. ;f unpaid# it is added to t%e face "alue of t%e bonds to obtain boo$ "alue of bonds. 3ccrued interest is c/ar%e" to Interest Expense.

(. 3. 4. 5.

. +.

BON' RE)UN'IN2
&. (. 3. Definition: Floating of ne) bonds t%e proceeds from )%ic% are used in paying t%e original bonds. ;t is a premature retirement of t%e old bonds. @%is is also $no)n as bon" re-inancin%. ;f refunding is made at maturity date of bond# no accounting problem is encountered. Cld bond is cancelled and ne) bond issue is recorded in t%e usual manner. 4efunding c%arges pertaining to t%e old bonds are c%arged to loss on retirement of bonds. 4efunding c%arges include: >namorti6ed bond discount or premium

>namorti6ed bond issue cost 4edemption premium

PRO-)OR*A ENTRIES ( emorandum

ethod)

;ssuance<7ale of 8onds on an ;nterest 2ayment Date 7ales price J Face "alue

!ash Discount on Bonds Payable Bonds Payable !ash Premium on Bonds Payable Bonds Payable !ash Discount on Bonds Payable Bonds Payable Interest )*"ense !ash Bonds Payable Premium on Bonds Payable Interest )*"ense Interest )*"ense !ash Interest )*"ense Interest Payable Interest )*"ense Discount on Bonds Payable Premium on Bonds Payable Interest )*"ense Bonds Payable Interest )*"ense !ash/Sin$ing +und !ash/ Sin$ing +und Trustee

xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx

7ales price K Face "alue

;ssuance<7ale of 8onds 8et)een ;nterest 2ayment Dates 7ales price J Face "alue 7ales price K Face "alue

2ayment of interest expense

3ccrual of interest 3morti6ation of bond discount 3morti6ation of bond premium 8ond retirement on maturity date

8ond retirement prior to maturity date 9gain or loss:

Bonds Payable Interest )*"ense Premium on Bonds Payable ,oss on Retirement of Bonds !ash Discount on Bonds Payable &ain on Retirement of Bonds Bond Issue !ost !ash Interest )*"ense Bond Issue !ost Treasury Bonds Interest )*"ense Premium on Bonds Payable
,oss on Ac-uisition of Treasury Bonds

xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx

8ond issue cost 3morti6ation of bond issue cost 9o"er life of t%e bond: 2urc%ase of treasury bonds 9discount or premium# gain or loss on ac0uisition:

!ash Discount on Bonds Payable

&ain on Ac-uisition of Treasury Bonds

7ale of treasury bonds 9discount or premium:

!ash Discount on Bonds Payable Treasury Bonds Premium on Bonds Payable Bonds Payable Treasury Bonds !ash Discount on Bonds Payable Bonds Payable Premium on Bonds Payable
Share .arrants /utstanding

@reasury bonds not sold ;ssuance of bonds )it% common stoc$ )arrants 9discount or premium:

Exercise of t%e stoc$ )arrants

!ash
Share .arrants /utstanding

Share !a"ital % /rdinary

Share Premium

Expiration of remaining stoc$ )arrants

Share .arrants /utstanding Share Premium % )*"ired Share

.arrants 9

'on"ersion of bonds 9discount or premium:

Bonds Payable Premium on Bonds Payable Interest )*"ense Share !a"ital % /rdinary Discount on Bonds Payable Share Premium !ash !ash Discount on Bonds Payable Bonds Payable Premium on Bonds Payable Bonds Payable Discount on Bonds Payable ,oss on Retirement of Bonds !ash Premium on Bonds Payable

xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx

8ond 4efunding ;ssuance of ne) bonds 9discount or premium: 8ond 4efunding 4etirement of old bonds 9discount or premium:

)inancial State&ent Presentation

Non-'urrent !iabilities 8ond 2ayable !ess: Discount on 8ond 2ayable 8ond ;ssue 'ost 'arrying amount 8ond 2ayable 3dd: 2remium on 8ond 2ayable 7ub-total !ess: 8ond ;ssue 'ost 'arrying amount 8onds 2ayable @reasury 8onds 8onds issued and outstanding 3dd<!ess: 2remium<Discount 'arrying amount Ct%er ;ncome<Expense Gain<!oss on 4etirement of 8onds 2 xxx 2 xx xx xx 2 xx xxx xx xxx xx xxx

2 2 2 2

xxx 9xxx: 2 xxx xx 2 xxx 2 xxx

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B! LON2-TER* NOTES PA(ABLE 9237 3-:

PRO*ISSOR( NOTE
;t is an unconditional promise made in )riting by one person to anot%er# signed by t%e ma$er# engaging to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer.

Pro--or&a Entries
;ssuance of long-term note !ash/Pro"erty Discount on 0otes Payable 0otes Payable Interest )*"ense Discount on 0otes Payable Interest )*"ense !ash 0otes Payable !ash xxx xxx

3morti6ation of discount 2ayment of interest 2ayment of note 1. Note issued solely for cash

xxx xxx xxx xxx xxx xxx

a. @%e face rate is li$ely to e0ual t%e mar$et rate because t%e rate is usually negotiated at t%e time of t%e loan. b. @%e present "alue is e0ual to t%e cas% proceeds. 2. Interest bearing note issued for property a. @%e property or asset is recorded at t%e purc%ase price. @%e purc%ase price is assumed to be t%e present "alue of t%e note. 3. Non-interest bearing note issued for property a. @%e property is recorded at t%e cas% price of t%e property. @%e cas% price is assumed to be t%e present "alue of t%e note. b. ;f t%ere is no cas% price# t%e cost of t%e property is t%e sum of t%e present "alue of t%e expected cas% payments.

11

c. ;f t%ere is no cas% price# and t%ere is a do)n payment# t%e cost of t%e property is t%e sum of t%e present "alue of t%e expected cas% payments and t%e do)n payment.

:ul# $; $

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