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  • FAR - Financial Liabilities - Bonds Payable

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    marlout.sarita
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    1. Bonds payable are initially measured at fair value plus transaction costs. They are subsequently measured at amortized cost using the effective interest rate method. Interest expense, premium/discount amortization, and gains/losses on extinguishment are recognized. 2. Compound instruments with equity and liability components are separated at issuance. The liability is measured at fair value and the equity at residual amount. No subsequent remeasurement occurs unless converted or exercised. 3. Multiple choice questions test accounting for bonds payable including measurement, interest expense, premium/discount amortization, and gains/losses on extinguishment or conversion.

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    1. Bonds payable are initially measured at fair value plus transaction costs. They are subsequently measured at amortized cost using the effective interest rate method. Interest expense, premium/discount amortization, and gains/losses on extinguishment are recognized. 2. Compound instruments with equity and liability components are separated at issuance. The liability is measured at fair value and the equity at residual amount. No subsequent remeasurement occurs unless converted or exercised. 3. Multiple choice questions test accounting for bonds payable including measurement, interest expense, premium/discount amortization, and gains/losses on extinguishment or conversion.

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    2 views10 pages

    FAR - Financial Liabilities - Bonds Payable

    Uploaded by

    marlout.sarita
    1. Bonds payable are initially measured at fair value plus transaction costs. They are subsequently measured at amortized cost using the effective interest rate method. Interest expense, premium/discount amortization, and gains/losses on extinguishment are recognized. 2. Compound instruments with equity and liability components are separated at issuance. The liability is measured at fair value and the equity at residual amount. No subsequent remeasurement occurs unless converted or exercised. 3. Multiple choice questions test accounting for bonds payable including measurement, interest expense, premium/discount amortization, and gains/losses on extinguishment or conversion.

    Copyright:

    © All Rights Reserved
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    of 10

    Financial Liabilities - Bonds Payable

    Initial MeasurementFV - TC
    Bond Issue Cost - TC

    EIR equal NIR Face Value


    EIR not Equal NIPresent Value

    Subsequent Amortized Cost

    Expense RecognitioInterest Expense (EIR)


    Extinquishment /
    Derecognition 1. paying the creditor
    2. legally released

    Redemption Price/Payment* x
    Carrying Amount (x)
    Gain/Loss on Extinguisment x

    *in between interest date - accrued interest must be excluded from RP/Payment

    Compound Instruments - 1 FL + 1 Equity (e.i. Convertible Bonds, Bonds with Share Warrants)
    Initial measurment Issue Price x
    FV of Financial Liability/PV (x)
    Equity Component - APIC x

    Transaction Costs - allocate based on Proceeds


    1. Financial Liabity - TC deducted to the CA
    2. Equity Component - charged to APIC

    Subsequent Financial Liability @ Amortized Cost


    Equity Component - not remeasured

    Extinguishment Redemption Price/Payment x


    FV of Financial Liability/PV (x)
    Equity Component - APIC x

    Fv of Financial Liability/PV x
    Carrying Amount (x)
    Gain / Loss on Extinguishment x
    Conversion/ExercisConsideration received x
    Share Capital@Par (x)
    Share Premium x

    Convertible bonds - convert:


    Carrying amount of bonds x
    Equity Component/SP -Convers x
    Consideration Received x

    Bonds with share warrants - exercise:


    Exercise Price x
    Equity Component/SWO x
    Consideration Received x
    rom RP/Payment

    Share Warrants)
    Multiple Choice Questions
    1
    1/1/2014
    Principal 2000000 0.6499 1299800
    Interest 220000 3.8897 855734
    PV 2155534

    DR: Cash 2155534


    CR: Bonds Payable 2000000
    CR: Premium on BP 155534

    12/31/2014
    DR: Interest Expense 220000
    CR: Cash 220000

    Premium Amortization
    Effective Interest 193998.06
    Nominal Interest -220000
    Premium Amortization -26001.94

    DR: Premium on BP 26002


    CR: Interest Expense 26002

    CA, Bonds Payable, 12/31/2014 2129532

    12/31/2015
    Redemption Price 1980000
    Carrying Amount, 12/31/201 -2101190
    Gain on Extinguisment -121190

    DR: Bonds Payable 2000000


    DR: Premium on BP 129532
    DR: Interest Expense 191658
    CR: Gain on Extinguishment 121190
    CR: Cash (1980000 + 220000) 2200000

    Alternative:
    DR: Interest Expense 220000
    CR: Cash 220000

    DR: Premium on BP 28342


    CR: Interest Expense 28342

    Premium Amortization
    Effective Interest 191658
    Nominal Interest -220000
    Premium Amortization -28342

    DR: Bonds Payable 2000000


    DR: Premium on BP 101190
    CR: Gain on Extinguishment 121190
    CR: Cash 1980000

    Compound Instruments - Convertible Bonds


    7/1/2014
    Issue Price@par 5000000
    PV of FL -4580950
    Share Premium - CO/CP 419050

    6%,12 periods
    Principal 5000000 0.497 2485000
    Interest 250000 8.3838 2095950
    PV of FL 4580950

    DR: Cash 5000000


    DR: Discount on BP 419050
    CR: Bonds Payable 5000000
    CR: SP - Conversion Option 419050

    12/31/2014
    DR: Interest Expense 250000
    CR: Cash 250000

    Discount Amortization
    Effective Interest 274857
    Nominal Interest -250000
    Discount Amortization 24857

    DR: Interest Expense 24857


    CR: Discount on BP 24857

    CA, Bonds Payable, 12/31/2014 4605807


    SP - Conversion Option 419050

    6/30/2015
    DR: Interest Expense 250000
    CR: Cash 250000

    Discount Amortization
    Effective Interest 276348
    Nominal Interest -250000
    Discount Amortization 26348

    DR: Interest Expense 26348


    CR: Discount on BP 26348

    CA, Bonds Payable, 6/30/2015 4632155


    SP - Conversion Option 419050

    7/1/2015 - Conversion, 1,500 bonds


    CA of Bonds, 1500 (4632155 * 1500/5000) 1389647
    SP - Conversion Option (419050 *1500/500 125715
    Consideration Received 1515362
    Share Capital@par (1 * 15000sh) -15000
    SP - Issuance 1500362

    DR: Bonds Payable 1500000


    DR: SP - CO 125715
    CR: Discount on BP 110353
    CR: Ordinary Share Capital 15000
    CR: Share Premium 1500362

    2
    Compound Instrument - Bonds with Share Warrants
    Issue Price@102 3060000
    FV of Bonds (0.97 * 3000000 -2910000
    Share Warrants Outstanding 150000

    4/1/2013
    DR: Cash 3060000
    DR: Discount on BP 90000
    CR: Bonds Payable 3000000
    CR: Share Warrants Oustanding 150000
    next: Calculate the Effective Rate

    1/1/2015 - Exercise
    # of Shares - exercised 120000
    Exercise Price 25
    Total EP 3000000
    SWO 150000
    Consideration Received 3150000
    Share Capital@par (10*120000) -1200000
    SP - Issuance 1950000

    DR: Cash 3000000


    DR: SWO 150000
    CR: Ordinary SC 1200000
    CR: SP - Issuance 1950000

    3-5
    Principal 800000 3.7908 3032640
    Interest
    1st 320000 0.9091 290912
    2nd 256000 0.8264 211558.4
    3rd 192000 0.7513 144249.6
    4th 128000 0.683 87424
    5th 64000 0.6209 39737.6
    PV/Initial Measurement/Issue Price 3806521.6 3. B

    CA, 12/31/2014 3067173.76 4. B

    Interest Expense - 2015 306717.376 4. D

    6A
    Compound Instrument
    Issue Price@109 5450000
    PV of FL
    Principal 5000000*0.57 2850000
    Interest 550000 * 3.60 1980000 -4830000
    SWO 620000

    Face Value 5000000


    IM, FL -4830000
    Discount on BP, 12/31/2014 170000

    7-9
    Principal 5000000 0.6499 3249500
    Interest 550000 3.8897 2139335
    PV/Issue Price 5388835 7.A

    CA, Bonds Payable, 12/31/2014 5323830.15 8. C

    12/31/2015
    Redemption Price 2970000
    CA, 12/31/2015 (5252975 * -3151785
    Gain on Extinguisment -181785 9. C

    10 - 14
    Issue Price@par 2000000
    PV of FL -1873184 10. C
    SP - CO 126816 11. C

    Principal 2000000 0.683 1366000


    Interest 160000 3.1699 507184
    PV of FL 1873184

    CA, Bonds Payable, 12/31/ 1900502.4 12. D

    Interest Expense - 2014 190050.24 13. D

    Gain or Loss on Conversio 0 14. D

    15
    Issue Price 1000000
    FV of FL -902813
    SP - CO 97187

    Gain or Loss on Extinguishment (Maturit 0

    16 A
    7/1/2015 - Conversion
    CA, Bonds Payable (600000+12000) 612000
    SP - CO 0
    Consideration Received 612000
    Share Capital@par (50 * 6000sh) -300000
    SP - Issuance 312000

    Increase SC 300000
    Increase SP 312000

    17 C
    FV (0.97*20000000) 19400000
    Accrued Interest 300000
    Issue Price 19700000

    DR: Cash 19700000


    DR: Discount on BP 600000
    CR: Bonds Payable 20000000
    CR: Interest Expense 300000

    18 D
    Interest Payable (8000000*8%*2/12) 106666.6667

    19 A
    FV (0.99*5000000) 4950000
    Bond Issue Cost -425000
    Initial Measurement (FV-TC 4525000

    20 B
    Issue Price 526200
    FV of FL -490200
    SP - CO 36000

    Initial amount 490200


    Principal Payment 0
    Discount Amortization 300
    Impairment 0
    Amortized Cost (500000 - 95 490500

    Effective Interest 10300


    Nominal Interest -10000
    DA 300

    21 D
    Bond Issue Cost (20000+25000+200000) 245000
    FVTPL - Current
    FVTOCI - Non-current
    FA@AC - Non-current

    22 A
    classified as FVTPL

    IM, 1/1/2014 107720

    FV, 12/31/2014 106460


    CA - AC -107720
    Unrealized Gain - P/L -1260
    Interest Expense 12000
    Net amount - P/L 10740

    23 A
    Issue Price? *issued in between Interest Date - Issue Price includes AI

    Initial amount/Issue Price 360000


    Principal Payment 0
    Discount Amortization 3600
    Impairment 0
    Amortized Cost 363600

    24 D
    Issue Price 2130080 9%
    FV of FL -1880496 11%
    SP - CO 249584

    Interest Expense (1880496* 103427.28

    25 B
    7/2/2014
    Redemption Price (1.02 * 60 612000
    Carrying Amount,7/1/2014 -574200
    Loss on Extingushment 37800

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