微观经济学Non-current liabilities

PowerPoint presentation by Dr Anne Abraham, University of Western Sydney
5
Types of bonds continued
• Convertible and callable bonds – Convertible bonds can be converted into ordinary shares at the bondholder’s option – Callable bonds can be retired at stated dollar amount prior to maturity at the issuer’s option – most corporate bonds are issued with a call feature
liabilities section of the statement of financial
position because the maturity is more than one
year away
PowerPoint presentation by Dr Anne Abraham, University of Western Sydney
微观经济学Non-current liabilities
BOND BASICS
LO1
• Bonds are interest-bearing notes payable that are issued by companies, universities and government agencies
12
Issuing bonds at face value continued
– Entry to record payment of bond (assuming no accrual of interest)
Jan 1 Bond Interest Expense
45 000
Cash
45 000
92 639 7 361
100 000
PowerPoint presentation by Dr Anne Abraham, University of Western Sydney
15
Issuing bonds at a discount
continued
• Statement of financial positiபைடு நூலகம்n (partial)
• In authorising a bond issue, the board of directors must state – No. of bonds to be authorised – Total face value – Contractual issue rate
PowerPoint presentation by Dr Anne Abraham, University of Western Sydney
• They are in small denominations (usually a thousand dollars)
• To obtain large amounts of non-current capital, management usually must decide whether to issue ordinary shares (equity financing) or bonds (debt financing)
(To record payment of bond interest)
– Adjusting entry to recognise interest incurred but
not paid
Jun 30 Bond Interest Expense Bond Interest Payable (To accrue bond interest)
7
Issuing procedures continued
• Face value is amount of principal the issuer must pay at the maturity date
• Contractual (or stated) interest rate is the rate used to determine amount of cash interest the borrower pays and the investor receives
Example
– On 1 June 2010 Candlestick Ltd sells $100 000 5year 10% bonds for $92 639
– Interest payable 1 July and 1 January
– Entry to record issue:
Jan 1 Cash Unamortised discount Bonds Payable (To record sale of bonds at a discount)
• Bond indenture is a legal document setting out the terms of the bond issue
• Bond certificates provide information such as name of issuer, face value, maturity date, contractual interest rate
$50 000 7 361
$57 361
16
Issuing Bonds at a Discount (cont'd)
• Balance sheet (end 1st yr)
– Bearer (or coupon) bonds are bonds that are not registered to the owner – this means that holders of the bearer bonds must send in coupons to receive interest payments
PowerPoint presentation by Dr Anne Abraham, University of Western Sydney
6
Issuing procedures
• Approval by both the board of directors and shareholders is usually required
($100 000 x 10% x ½ = $5000; $5000 x 10) Add: Bond discount ($100 000 - $92 639)
Total cost of borrowing
PowerPoint presentation by Dr Anne Abraham, University of Western Sydney
– Entry to record bond issue
Jul 1 Cash
1 000 000
Bonds Payable
1 000 000
(To record issue of bonds at face value)
– Bonds payable are reported in non-current
Non-current liabilities Bonds payable Less: Unamortised discount
$100 000 7 361 $92 639
• Total cost of borrowing
Bonds issued at a discount Semi-annual interest payments
PowerPoint presentation by Dr Anne Abraham, University of Western Sydney
10
ACCOUNTING FOR BOND ISSUES
LO2
• Bonds may be issued – at face value – below face value (at a discount), or – above face value (at a premium)
45 000 45 000
PowerPoint presentation by Dr Anne Abraham, University of Western Sydney
13
Discount or premium on bonds
Market Rates 8%
Bonds Sell at: Premium
PowerPoint presentation by Dr Anne Abraham, University of Western Sydney
2
Types of bonds continued
• Registered and bearer bonds
– Registered bonds are bonds issued in the name of the owner with interest payments being made to the bondholder of record
9
Determining the market value of bonds
• The present value of a bond is the amount at which it should sell in the marketplace
• It is determined by – cash amounts to be received (face value + contractual interest rate) – length of time until investor receives cash – by current market rate of interest