Financial asset at amortized cost

Financial asset at amortized cost - CHAPTER 23(FINANCIAL...

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CHAPTER 23 (FINANCIAL ASSET AT AMORTIZED COST: Notes) FINANCIAL ASSET AT AMORTIZED COST Only debt instruments Classification: Noncurrent asset Example: Bonds- evidenced by “bond indenture” - Two parties: bondholder (creditor) and issuer (debtor) - If silent, denomination of 1,000. (So to compute for the face amount if bond denomination is not given, multiply the number of bonds issued by 1,000) - Example: If the entity purchased 2,000 bonds. Face amount is P2,000,000 (2,000X1,000 per bond) Measurement: Initial: Fair Value (FV) plus transaction costs (TC) Refers to the transaction price, if given. If not, PV of principal and interest payments. Subsequent: Amortized cost (effective interest/scientific method) Initial recognition [FV plus TC minus repayments plus (minus) amortization of discount (premium) minus impairment loss] On amortization: (1) Must be done through “interest income” account. Meaning, if discount credit the “interest income”; if premium debit “interest income” Why? Remember, if bonds are purchased at a discount: a. The cost/initial carrying amount of bonds is less than the Face Value of bonds. Meaning, if you are the investor or
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