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Bond Question
10-29-2010, 04:19 PM
Post: #1
Bond Question
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.
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11-05-2010, 12:25 AM
Post: #2
 
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.
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