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Summary Bonds Payable PDF
Summary Bonds Payable PDF
Summary Bonds Payable PDF
A bond is a formal unconditional promise, made under seal, to pay a specified sum of money at
determinable future date, and to make periodic interest payment at a stated rate until the principal
sum is paid.
In simple language, a bond is a contract of debt (bond indenture) whereby one party called the
issuer borrows funds from another party called the investor. A bond is evidence by a certificate.
Initial Measurement xx
Principal repayments (xx)
Cumulative Amortization of Premium (xx)
Cumulative Amortization of Discount xx
Amortized Cost/Carrying amount of B/P xx
OR
Face Value/ Principal xx
Principal repayments (xx)
Unamortized Premium xx
Unamortized Discount (xx)
Amortized Cost/Carrying amount of B/P xx
Initial Measurement > Face Amount = Premium on Bonds Payable (Credit) = ER < NR
Initial Measurement < Face Amount = Discount on Bonds Payable (Debit) = ER > NR
Discount on Bonds Payable – is a deduction from the bonds payable (valuation account) – contra
liability
Premium on Bonds Payable – is an addition to the bonds payable (valuation account) – adjunct
account
Bond Issue Cost – transaction costs directly attributable to the issue of bonds payable. Such
costs include printing and engraving cost, legal and accounting fee, registration fee, commissions paid
to agents and underwriters and other similar charges.
(PFRS 9) Bond issue cost shall be deducted from the fair value or issue price of bonds payable
in measuring initially the bonds.
Under effective interest method of amortization, the bond issue cost must be “lumped” with the
discount on bonds payable and “netted” against the premium on bonds payable.
However, if the bonds are measured at fair value through profit or loss, the bond issue costs
are expensed outright.
Premium and Discount are subject to amortization based on the life of the bonds. Life of the
bonds will commence on the date of issuance up to the maturity date.
Issuance of Bonds
a. On interest dates
Cash
Bonds Payable
Presentation in the FS
Accrued Interest Payable – classified as current liability
Amortized Cost/Carrying amount of Bonds Payable – Non-current Liability
Illustrations
Illustration 1: On June 1, 2020, an entity issue bonds with face amount of 5,000,000 at 97.
The bonds mature in 5 years and pay 12% interest semiannually on June 1, and December 1.
2020
June 1 Cash (5,000,000 x.97) 4,850,000
Discount on Notes Payable 150,000
Bonds Payable 5,000,000
December 1
Interest Expense (5,000,000 x 12% x 6/12) 300,000
Cash 300,000
December 31
Interest expense (5,000,000 x 12% x 1/12) 50,000
Accrued Interest Payable 50,000
Current Liability
Accrued interest Payable 17,500
Non-current Liability
Initial Measurement 4,850,000
Cumulative Amort. of disc. 17,500
Amortized Cost, Dec. 31, 2020 4,867,500
or
Face Value 5,000,000
Discount on BP 150,000
Amortization (17,500)
Unamortized discount (132,500)
Amortized Cost, Dec. 31, 2020 4,867,500
2021
Jan 1 Accrued interest payable 50,000
Interest expense 50,000
Illustration 2: On April 1, 2020, an entity issued bonds with face amount of 5,000,000 at 5,228,000
plus accrued interest. The bonds are dated January 1,2020, matures in 5 years and pay 12% interest
semiannually on January 1 and July 1.
2020
April 1
Cash 5,378,000
Bonds Payable 5,000,000
Premium on BP 228,000
Interest Expense 150,000
July 1
Interest Expense (5M x 12% x 6/12) 300,000
Cash 300,000
December 31
Interest Expense (July 1 – Dec 31) 300,000
Accrued Interest Payable 300,000
The bonds are issued on January 1, 2020 and mature in three years on January 1, 2023. The
interest is payable semiannually every June 30 and December 31.
Amortization Table
Retirement Price xx
CA of bonds retired (xx)
Loss (gain) xx (xx)
PFRS 9, par 4.2.2, provides that at initial recognition bonds payable may be irrevocably
designated as at fair value through profit or loss. Subsequent measurement is at fair value. Changes
in fair values shall be recognized in profit or loss.