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Bond Question - thewitcher - 10-29-2010
Can anyone solve this for me pls?
Issuance of bonds
Number of bonds = 1000
Face value = 1 bond of Rs. 1000 and interest rate is 12%
term/period = 5 years
Issued at discount i.e. = Rs. 900
On maturity it will be redeemed at Rs. 1100
I want to know its
Accounting treatment
Issuance
Interest/Payment
closing entry
and reporting in financial statement.
- ciapk - 11-05-2010
Dear,
Lets suppose bonds issued on 1-1-05 and will be matured on 31-12-10, entries to record 1 bond of Rs 1,000 will be as follows
01. 1-1-05
Investment Dr 900
Bank Cr 900
(Recording purchase of bonds at discount)
02. 31-12-05
Investment Dr. 149
Interest Income Cr. 149
(Recording interest income using IRR which is 16.531%)
03. 31-12-05
Bank Dr. 120
Investment Cr. 120
(Coupon interest received @ 12% on face value)
Second year
Entry 02 with 154
Entry 03 with 120
Third year
Entry 02 with 159
Entry 03 with 120
Fourth year
Entry 02 with 166
Entry 03 with 120
Last year
Entry 02 with 173
Entry 03 with 120
and closing entry
Bank Dr. 1,100
Investment Cr. 1,100
Balance sheet investment figures
First year end 929
2nd year 962
3rd year 1,001
4th year 1,047
5th year 0
P N L figures
1st year 149
2nd year 154
3rd year 159
4th year 166
5th year 173
Hope answer your question.