FINANCIAL

LIABILITIES
BONDS PAYABLE – Part 2
 Bonds Payable

 Bond Issue Price

A Co. issued a P5,000,000, 5-year term bond on January 1, 2021 with

a nominal interest rate of 9%. The related interest on the bonds is
payable semi-annually on January 1 and July 1. The company uses
the effective interest method of amortization. The bonds were sold
to yield 8%.

 Present value factor of P1 lumpsum using 4% for 10 periods is

.6756
 Present value factor of P1 ordinary annuity using 4% for 10
periods is 8.1109
 Bonds Payable

 Bond Issue Price

Interest to be paid (semi-annually) P225,000

(P5,000,000 x 9%/2)

PV of the Principal (P5,000,000 x .6756) P3,378,000

PV of the Interest (P225,000 x 8.1109) 1,824,953
Bond Issue Price P 5,202,953

Cash 5,202,953
Bonds Payable 5,000,000
Premium on Bonds Payable 202,953
BOND ISSUE
COST
 Bonds Payable

 Bond Issue Cost

 Incremental costs that are directly attributable to the issue of

bonds payable.

 Such costs include printing and engraving cost, legal and

accounting fees, registration with regulatory authorities,
commission paid to agents and underwriters, and other similar
charges.

 They are amortized over the life of the bond issue.

 Bonds Payable

 Bond Issue Cost

 Assuming the bonds are issued at a premium:

Cash XXX
Bonds Payable XXX
Premium on Bonds Payable XXX
To record the issuance of bonds at a premium

Premium on Bonds Payable XXX

Cash XXX
To record the payment of bond issue costs
 Bonds Payable

 Bond Issue Cost

 Assuming the bonds are issued at a premium:

On July 1, 2021, A Co. issued at 104, five thousand of 10% P1,000 face
value bonds. The bonds were issued through an underwriter to
whom the entity paid bond issue costs of P125,000. On July 1, 2021,
what amount should be reported as bond liability?

Issue Price (5,000,000 X 104%) P5,200,000

Bonds Payable 5,000,000

Premium on Bonds Payable 200,000
Bond Issue Cost (125,000)
Carrying Amount of Bonds Payable P5,075,000
 Bonds Payable
 Bond Issue Cost

 Assuming the bonds are issued at a premium:

On July 1, 2021, A Co. issued at 104, five thousand of 10% P1,000 face
value bonds. The bonds were issued through an underwriter to
whom the entity paid bond issue costs of P125,000. On July 1, 2021,
what amount should be reported as bond liability?

Cash 5,200,000
Bonds Payable 5,000,000
Premium on Bonds Payable 200,000
To record the issuance of bonds at a premium

Premium on Bonds Payable 125,000

Cash 125,000
To record the payment of bond issue costs
 Bonds Payable

 Bond Issue Cost

 Assuming the bonds are issued at a discount:

Cash XXX
Discount on Bonds Payable XXX
Bonds Payable XXX
To record the issuance of bonds at a discount

Discount on Bonds Payable XXX

Cash XXX
To record the payment of bond issue costs
 Bonds Payable

 Bond Issue Cost

 Assuming the bonds are issued at a discount:

On June 30, 2021, A Co. issued at 99, five thousand of 8% P1,000 face
value bonds. The bonds were issued through an underwriter to
whom the entity paid bond issue costs of P425,000. On June 30,
2021, what amount should be reported as bond liability?

Issue Price (5,000,000 X 99%) P4,950,000

Bonds Payable 5,000,000

Discount on Bonds Payable (50,000)
Bond Issue Cost (425,000)
Carrying Amount of Bonds Payable P4,525,000
 Bonds Payable
 Bond Issue Cost

 Assuming the bonds are issued at a premium:

On June 30, 2021, A Co. issued at 99, five thousand of 8% P1,000 face
value bonds. The bonds were issued through an underwriter to
whom the entity paid bond issue costs of P425,000. On June 30,
2021, what amount should be reported as bond liability?

Cash 4,950,000
Discount on Bonds Payable 50,000
Bonds Payable 5,000,000
To record the issuance of bonds at a discount

Discount on Bonds Payable 425,000

Cash 425,000
To record the payment of bond issue costs
 Bonds Payable

 Bond Issue Cost

 The incurrence of bond issue requires a re-computation of the

yield or effective interest rate on the bond issue.

 Computation of effective interest rate by interpolation.

 Bonds Payable

 Bond Issue Cost

 The incurrence of bond issue requires a re-computation of the

yield or effective interest rate on the bond issue.

 Computation of effective interest rate by interpolation.

 Bonds Payable
 Bond Issue Cost

 The incurrence of bond issue requires a re-computation of the yield or

effective interest rate on the bond issue.

 Computation of effective interest rate by interpolation.

 PREMIUM AND
DISCOUNT
AMORTIZATION
 Bonds Payable

 Amortized Cost of Bonds Payable

 The “amortized cost” of bonds payable is the amount at which

the bond liability is measured initially minus principal
repayment, plus or minus the cumulative amortization using
the effective interest method of any difference between the
initial amount and the maturity amount.

 Discount / Premium = Face Amount – Present Value

 Amortized using the effective interest method.
 Bonds Payable

 Effective Interest Method (Amortizing Bond Premium)

 Nominal Interest = Face Value of the Bonds X Stated Rate

 Effective Interest = Bond Carrying Value, Beg. X Market Rate

 Premium Amortization = Nominal Interest – Effective Interest

 Bond Carrying Value, End = Bond Carrying Value, Beg –

Premium Amortization
 Bonds Payable
 Effective Interest Method (Amortizing Bond Premium)
 Bonds Payable
 Effective Interest Method (Amortizing Bond Premium)
 Bonds Payable
 Effective Interest Method (Amortizing Bond Premium)
 Bonds Payable
 Effective Interest Method (Amortizing Bond Premium)
 Bonds Payable

 Effective Interest Method (Amortizing Bond Discount)

 Nominal Interest = Face Value of the Bonds X Stated Rate

 Effective Interest = Bond Carrying Value, Beg. X Market Rate

 Discount Amortization = Effective Interest – Nominal Interest

 Bond Carrying Value, End = Bond Carrying Value, Beg –

Discount Amortization
 Bonds Payable
 Effective Interest Method (Amortizing Bond Discount)
 Bonds Payable
 Effective Interest Method (Amortizing Bond Discount)
 Bonds Payable
 Effective Interest Method (Amortizing Bond Discount)
 Bonds Payable
 Effective Interest Method (Amortizing Bond Discount)
RETIREMENT OF
BONDS
 Bonds Payable
 Retirement of Bonds

Bonds Payable XXX

Cash XXX
To record the settlement of the bonds on the maturity date

 Bond Refunding
 Bonds Payable
 Retirement of Bonds Prior to Maturity Date
 Bonds Payable
 Retirement of Bonds Prior to Maturity Date
 Bonds Payable
 Retirement of Bonds Prior to Maturity Date
DISCLOSURES
 Bonds Payable
 Disclosures

An entity shall disclose information that enables users of its financial

statements to evaluate the significance of financial instruments for its
financial position and performance. (IFRS 7, paragraph 7)
Thanks!
Does anyone have any questions?

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