Lecture Notes

Nature of bonds payable

A Bond is a formal unconditional promise, made under seal, to pay a specified sum of money at
a determinable future date, to make periodic interest payment at a stated rate until the principal
sum is paid.
Bonds payable are financial liabilities since they represent contractual obligation to pay cash or
other financial assets.
Derecognition of a Financial Liability
• A financial liability should be removed from the statement of financial position when, and
only when, it is extinguished, that is, when the obligation specified in the contract is either
discharged, cancelled, or expired.
• Where there has been an exchange between an existing borrower and lender of debt
instruments with substantially different terms, or there has been a substantial modification of
the terms of an existing financial liability, this transaction is accounted for as an
extinguishment of the original financial liability and the recognition of a new financial liability.
• A gain or loss from extinguishment of the original financial liability is recognized in the income
statement.