BONDS PAYABLE

- 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

TERM BONDS SERIAL BONDS

Bonds with a single date of Bonds with a series of
maturity maturity dates

SECURED & OTHER TYPES OF FEATURES OF BOND

UNSECURED BONDS BONDS ISSUE
Mortgage Bonds Convertible Bonds Bond indenture

Collateral trust bonds Callable Bonds Bond certificates

Debenture bonds Guaranteed Bonds A trustee
Junk Bonds Disbursing agent
Zero-coupon bonds

INITIAL MEASUREMENT SUBSEQUENT MEASUREMENT

Bonds payable not designated at fair At amortized cost, using the effective
value through P/L shall be measured at interest method
fair value less transaction cost
At fair value through profit and loss
Bonds payable designated at fair value
through P/L are treated as expense
immediately

A M O R T I Z E D C O S T OF B. P ACCOUNTING FOR ISSUANCE OF BONDS

Bond liability is measured initially A. Memorandum approach

minus principal repayment plus/minus
the cumulative amortization using B. Journal Entry approach
effective int rate method

ISSUANCE OF BONDS AT A PREMIUM ISSUANCE OF BONDS AT A DISCOUNT

If a sales price is more than the face If the sales price of the bonds is less
amount of the bonds, the bonds are than the face amount, the bonds are
said to be sold at a premium said to be sold at a discount

PRESENTATION OF DISCOUNT AND PREMIUM

Discount and premium on bond payable are adjustments
to liability account

Discount is deduction from the bond payable

Premium is an addition to the bond payable

TREASURY BONDS

Entity’s own bonds originally

issued and reacquired but not
canceled
 BOND REFUNDING

The floating of new bonds the

proceeds from which are used in
paying the original bonds

Premature retirement of old

bonds
Accounted for as an
extinguishment

A M O R T I Z A T I O N OF B O N D S
D I S C O U N T OR P R E M I U M
Straight line
Effective interest method
Bond outstanding method

FAIR VALUE OPTION OF CHANGE IN FAIR VALUE

MEASURING BONDS PAYABLE RECOGNIZED OCI
Initial recognition of bonds payable Provides that the gain or loss on
maybe irrevocably designated as at financial liability designated at fair
fair value through P/La value through profit/loss
No more amortization of bond
discount and bond premium
IF LOSS, ACCOUNTED AS FOLLOWS:
Interest expense is recognized
using the nominal or stated rate A. The change in fair value
attributable to the credit risk of the
liability is recognized in OCI

Credit risk is the risk that the issuer

ACCOUNTING MISMATCH
of the liability would cause financial
loss to the other party
Would enlarged if presenting the
effects of changes in the credit risk B. Remaining amount of the
in other comprehensive income change in fair value is recognized in
would result in a material or greater profit or loss
difference in P/L