Deep Discount Bonds
This query is : Resolved
20 July 2010
What is deep discount bonds???
and what is the accounting treatment for issue of these bonds???
Is interest is paid on these bonds???
and what is the accounting treatment for issue of these bonds???
Is interest is paid on these bonds???
21 July 2010
As the name suggests, a deep discount bond is a type of bond – this means that it is a fixed income instrument. Your investment in this bond gives you a fixed return.
Difference from a regular bond:--
So, how is a deep discount bond different from a regular bond? Here are a few differences:
- It is not issued at face value. In fact, it is issued at a discount to the face value.
- There is no coupon for these bonds. That is, these bonds bear a zero coupon rate, and have no periodic interest payment.
Well, if this is the case, how do you earn from these bonds? How is the interest paid to you? Let’s find out!
How does a deep discount bond work?
A deep discount bond is issued at a steep discount to the face value of the bond.
Thus, if the face value of the bond is Rs. 100, it is issued at a deep discount to it – say, at Rs. 65.
And on the date of maturity, when the bond is redeemed, the bond issuer pays you the face value of the bond.
Yes, you read it right – the bond is issued at a discount to the face value, and is redeemed at its face value.
Difference from a regular bond:--
So, how is a deep discount bond different from a regular bond? Here are a few differences:
- It is not issued at face value. In fact, it is issued at a discount to the face value.
- There is no coupon for these bonds. That is, these bonds bear a zero coupon rate, and have no periodic interest payment.
Well, if this is the case, how do you earn from these bonds? How is the interest paid to you? Let’s find out!
How does a deep discount bond work?
A deep discount bond is issued at a steep discount to the face value of the bond.
Thus, if the face value of the bond is Rs. 100, it is issued at a deep discount to it – say, at Rs. 65.
And on the date of maturity, when the bond is redeemed, the bond issuer pays you the face value of the bond.
Yes, you read it right – the bond is issued at a discount to the face value, and is redeemed at its face value.
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21 July 2010
Can u tell me the accounting entries for accounting of these bonds???
21 July 2010
At the time of investment---
Deep Discount Bond A/c Dr.....
To Bank.......
At Maturity----
Bank A/c Dr.....
To Deep Discount Bond A/c...
To Income from Deep Discount Bond A/c...
Deep Discount Bond A/c Dr.....
To Bank.......
At Maturity----
Bank A/c Dr.....
To Deep Discount Bond A/c...
To Income from Deep Discount Bond A/c...
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