If Face Amount or Principal Amount > Cost of Investment = Discount (Gain on the part of the investor)

If Face Amount or Principal Amount < Cost of Investment = Premium (Loss on the part of the investor)

Methods of amortization of DISCOUNT/PREMIUM:

1. Straight Line Method = Discount or Premium / life of bonds from acquisition date to maturity date of bonds
2. Bonds Outstanding method - applicable for serial bonds; amortization amount is decreasing
3. Effective interest method - amortization amount is increasing
a. Effective interest > Nominal Interest = DISCOUNT
b. Effective interest < Nominal Interest = PREMIUM

Classification of Bond Investments

FA @ Held for Trading (FVPL) FA @ Amorized Cost FA @ FVOCI FA @ FVPL by irrevocable election (fair value option
Initial Measurement Fair Value Fair Value + Transaction Cost Fair Value + Transaction Cost Fair Value
Subsequent Measurement Fair Value Amortized Cost: Fair Value Fair Value
Initial Measurement xx
Principal Repayments (xx)
Amortization of DISCOUNT xx
Amortization of PREMIUM (xx)
Impairment (xx)
Amortized cost/ Carrying Amount xx

Amortization of Discount/Premium: No Amortization W/ amortization W/ amortization

Straight Line Not Applicable Applicable Not Applicable Not Applicable
Bonds Outstanding Not Applicable Applicable Not Applicable Not Applicable
Effective Interest Not Applicable Applicable Applicable Not Applicable