FA at Amortized Cost

Bond - a formal unconditional promise to pay a specified sum of money at a determinable future date and to make periodic interest payments at a stated rate until the principal sum is paid.

Interpretation: it is a promise to pay a specific amount of money at a set future data and pay periodic interest payments at a stated rate until the principal sum is paid (so magpadayun og bayad ka sa bond, if imung prinicpal amount is not paid)

Bond - a contract of debt, where one party called the issuer borrows money from another party called the investor.

Bond - debt security, bondholder is the creditor and the issuer is the debtor.

Bond - is evidenced by a certificate and the contractual agreement between the issuer and investor is contained in another document known as “bond indenture”.

Bond investments are classified and accounted as:

  1. Financial asset held for trading

  2. Financial asset at amortized cost

  3. Financial asset at fair value through other comprehensive income

  4. Financial asset through irrevocable designation

Initial measurement - Fair value plus transaction cost unless if held for trading the transaction cost are expensed immediately.

Subsequent measurement

  1. FVPL

  2. FVOCI

  3. Amortized Cost

Story:

In journalizing for Bonds

First we need to record the acquisition

Dr. Investment in Bonds

Cr. Cash

Next we acknowledge the interest income

Dr. Cash

Cr. Interest Income

If the bond is acquired in the interest dates, be cautious on the accrued interest na need adjustments for the next year.

Dr. Accrued interest receivable

Cr. Interest Income

Also be aware:

Premium is lugi ta kay mas dako atung gibayad than its actual cost so na kwaan atung Investment

Dr. Interest income

Cr. Investment in Bonds

For discount, as presented in its name, naka discout ta sa pag palit where we paid lesser than its actual cost so mas nidako ang value sa atung investment

Dr. Investment in Bonds

Cr. Interest Income

Calculating for amortized cost

Count the amount of months na recognize ang bonds on the acquired year, in this case is February 1 - December 31 so = 11 months on that 11 months naa man tay

1,050,000 na CA

1,000,000 na Face amount

so naay 50,000 worth e amortize so pila man ang remaining life sa bonds? february 2022 - april 2026

2023, 24, 25

36 + 11 + 3 = 50

50,000/50 = 1k so na use natoh syag 11 months so worth 11k ang e amortize.