Entries for deep discount bonds

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

13 June 2012 Dear Sirs,

Suppose deep discout bonds of Rs.1,00,000 (Face value)are purchased for Rs.70,000 on 1/4/2012. At maturity, on 31/3/2015, we shall get Rs.1,70,000.

Kindly guide in respect of (1)Purchase entry and (2)Interest Income Entry

Sanjay Chauhan (IFRS)

Sanjay Chauhan (IFRS) (Expert)
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14 June 2012 Investments under AS 13 are to be accounted at Cost.

Hence the entry would be:
Deep Discount Bonds Dr. 70,000
To Bank Cr. 70,000

Excerpt from AS 9 - Revenue recognition.
8.2 Interest accrues, in most circumstances, on the time basis determined
by the amount outstanding and the rate applicable. Usually, discount or premium on debt securities held is treated as though it were accruing over the period
to maturity.

Hence income entry would be based on th eeffcetive yield or return on the investment during the holding period.

In the given case, the return of Rs 1 lac will be received by holding it for 3 years and hence each year the entity should accrue Rs 33,333. (SLM). Under IFRS it would be on effective Interest rate method which similar to annual compounding concept.

Income Entry :

Deep Discount Bonds Dr. 33,333
To Income Cr. 33,333

(pass this entry for three years)

AT the end of the term, the Deep discount bonds will be standing at Rs 170000.

AT the time of receipt
Bank Dr. 170000
To Deep Discount Bonds Cr. 170000

Rgds,
SC

Querist : Anonymous

Querist : Anonymous (Querist)

14 June 2012 Thanks a lot!

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