BONDS PAYABLE – NOT DESIGNATED AT FVPL

I. SALE OF BONDS
A. DURING THE YEAR
1. SALE
 Check is cash or selling price is different from the face amount
a. At a discount if cash or selling price is lower than the face amount
b. At a premium if cash or selling price is higher than the face amount
 Check date of sale
a. If sold in between interest payment date, include accrued interest as part of
payment to be collected from investor/lender/bondholder (computation from date
of issue up to the immediately next interest payment date)
b. If sold in the same interest payment date, no accrual of interest to be collected but
accrual of interest up to the financial reporting date will be made at yearend
 Check if there is Bond Issue Or Transaction Cost
a. If NOT DESIGNATED at FVPL, add to discount, deduct from premium
b. If DESIGNATED at FVPL, expense outright
2. INTEREST PAYMENT
 Check if payment is at the start of the month or end of the month
 Check frequency and dates of interest payment
 If December 31, no accrual will be recognized since interest will be promptly paid
3. ACCRUAL OF INTEREST
 Accrue if interest payment does not fall at the last day of the accounting period/year
 Accrue from last interest payment date up to the financial reporting date
 If pre-terminated, retired, redeemed, refunded, accrue up to the date of pre-
termination, retirement, redemption or refund.
4. AMORTIZATION OF DISCOUNT OR PREMIUM USING STRAIGHT LINE (only for NOT
DESIGNATED as FVPL)
 If TERM BONDS, use straight line method to amortize premium or discount
a. Check on the unexpired life up to the maturity date to be used in amortizing the
premium or discount (use only the unexpired life in amortization)
b. Amortize starting from the Issue Date to Financial Reporting Date (applicable at the
start of the year when bond was issued, then subsequently, full year amortization
until retirement date)
c. When pre-terminating, retiring, refunding or redeeming bonds, amortize the last
year from start of the year up to the Retirement or pre-termination Date (applicable
at the year when the bonds are pre-terminated, retired, redeemed, refunded)
 If SERIAL BONDS
a. Use Bonds Outstanding Method (Fractional allocation in amortization using a
diminishing balance of the Bonds Payable) – Chapter 5
 Ending Balances (face amount at the start of the year minus principal payment)
of the Bond will be used to allocate the discount or premium
 b.
Use Effective Interest Method [Present Value of Principal (PV of 1) and Present
Value of Periodic Interest (PV of Annuity) Payments] – Chapter 6
B. SUBSEQUENT YEARS
5. REVERSAL OF ACCRUAL – TOTAL REVERSAL AT THE START OF THE NEXT ACCOUNTING
PERIOD/YEAR
6. INTEREST PAYMENTS – SAME AS NO. 2
7. ACCRUAL OF INTEREST – SAME AS NO. 3
8. AMORTIZATION – SAME AS NO. 4
9. PRE-TERMINATION, RETIREMENT, REDEMPTION, REFUND

BONDS PAYABLE –DESIGNATED AT FVPL

A. IRREVOCABLE DESIGNATION AT THE START OF THE YEAR

B. NO AMORTIZATION OF PREMIUM OR DISCOUNT
C. BOND ISSUE OR TRANSACTION COST IS RECOGNIZED IMMEDIATELY AS EXPENSE
D. MEASUREMENT
1. INITIAL - Recognize at fair value or face amount
2. SUBSEQUENT – Fair value changes at yearend
a. If due to credit risk, present under OCI
b. If other than credit risk e.g. price, currency, interest risks, etc., present under profit or
loss
E. FAIR VALUE CHANGES – Compare face amount vs. fair value
1. Fair value higher than face amount – loss (because the increase in fair value has an effect of
increasing the amount of liability)
2. Fair value is lower than face amount – gain (because the decrease in fair value has an effect
of decreasing the value of the liability to be settled)

II. REFUNDING/REFINANCING, REISSUANCE, RETIREMENT OF BONDS, TREASURY BONDS(OR

REACQUISITION), EXTINGUISHMENT
1. DETERMINE THE TOTAL AMORTIZATION OF THE PREMIUM OR DISCOUNT UP TO THE
RETIREMENT, PRE-TERMINATION, REISSUANCE, REFUNDING OR REACQUISITION DATE
 Check the total amortized life from the date of sale up to termination date
 The amortized life over the total life of the bond multiplied by the discount or period is the
total amortization from sale date to termination date
2. DETERMINE THE BALANCE OF THE PREMIUM OR DISCOUNT ON BONDS PAYABLE
 Discount or premium minus total amortization
3. COMPUTE FOR THE ACCRUED INTEREST TO BE PAID ON RETIREMENT
 From last interest payment date up to the retirement date
  This is needed because the interest has to be included in the amount to be paid for the
retirement of the bond.
4. COMPUTE FOR THE CASH PAYMENT
 Retirement price is CASH
 Accrued interest is INTEREST EXPENSE (added to CASH) because this is to be paid
5. COMPUTE FOR THE BALANCE OF THE BONDS PAYABLE INCLUDING THE BALANCE OF THE
DISCOUNT OR PREMIUM
 Face amount of the bonds payable in case of TERM BONDS or
 Face amount of bonds payable minus principal payments made in case of SERIAL BONDS
 Add: Balance of Premium if sold at premium or (computed on No. 2)
 Deduct: Balance of Discount is sold at discount (computed on No. 2)
6. COMPUTE FOR THE GAIN OR LOSS ON RETIRMENT OR EXTINGUISHMENT
 Carrying amount of the bonds payable (computed on no. 5 i.e. face amount add balance of
premium or deduct balance of discount)
 Deduct Retirement Price
 If retirement price is lower, gain (because you will pay less to settle the obligation)
 If retirement price is higher, loss (because you will pay more to settle the obligation
7. THE GAIN OR LOSS IS RECORDED IN THE INCOME STATEMENT AS FINANCE COST OR OTHER
INCOME
8. IF NOT ALL OF THE BONDS ARE EXTINGUISHED
a. The basis for the interest will be the amount that will extinguished
b. The basis for the amortization of the premium or discount is an allocation of the face
amount of the extinguished portion over the total bonds payable e.g. if 1,000 will be
extinguished out of 5,000, the allocation will be 1,000 / 5,000 or 1/5