Hi IFT team, please note that there is a contradiction in this video. At 0:30 you mentioned that both IFRS and US GAAP have converged and are reporting the amount of the sales proceeds net of issuance costs, but at 13:00 you go back and separate them and deal with them differently. Can you please clarify?
External: The curriculum still mentions that under US GAAP, companies used to record issuance costs as an asset. However, as mentioned at 0:30, now they are netted. IFT support team
Text from the curriculum:Such issuance costs as printing, legal fees, commissions, and other types of charges are costs incurred when bonds are issued. Under International Financial Reporting Standards (IFRS), all debt issuance costs are included in the measurement of the liability, bonds payable. Under US generally accepted accounting principles (US GAAP), companies generally used to show these debt issuance costs as an asset (a deferred charge), which was amortised on a straight- line basis to the relevant expense (e.g., legal fees) over the life of the bonds. Under US GAAP, debt issuance costs are deducted from the related debt liability. Companies reporting under US GAAP may still report debt issuance costs for lines of credit as an asset because the SEC indicated that it would not object to this treatment. IFT support team
Hey IFT Support team, in the example at 7:42 you mention that the book value of the bond today is above par, If the current rate that the market demands is 9% and the coupon is 8.5%, how is the bond going to be traded at above par? Why do we consider the effective rate of the bond, present value discounting should happen on the basis of prevalent discount rates right and not the Effective discount rate? and so the solution should be below par, right? Please clarify Thanks!
I guess it depends on if you choose to account the bond at fair value or not. If not, the current yield and therefore the fair value is ignored after issuance
When bonds are reported at amortized costs, we only consider the market rate at the time of issuance and the current market rate is ignored. If the company chooses to use the fair value reporting option, the current market rate will be considered. This point is discussed on the next slide following the example.
Gain or loss = Redemption price - Book value of the bond liability at the reacquisition date If the redemption price is higher than book value, a loss will be reported. For example, if redemption price = 1,020,000 and book value = 990,000, the loss will be 30,000. If the redemption price is lower than the book value, a gain will be reported. IFT Support Team
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Thank you very much. These videos are incredibly clear. Don't know what i would do without you!
Glad you like them!
IFT support team
Thanks so much for these videos Sir! The explanation is concise and clear. Helps a lot!
Hi IFT team, please note that there is a contradiction in this video. At 0:30 you mentioned that both IFRS and US GAAP have converged and are reporting the amount of the sales proceeds net of issuance costs, but at 13:00 you go back and separate them and deal with them differently. Can you please clarify?
External: The curriculum still mentions that under US GAAP, companies used to record issuance costs as an asset. However, as mentioned at 0:30, now they are netted.
IFT support team
Text from the curriculum:Such issuance costs as printing, legal fees, commissions, and other types of charges are costs incurred when bonds are issued. Under International Financial Reporting Standards (IFRS), all debt issuance costs are included in the measurement of the liability, bonds payable. Under US generally accepted accounting principles (US GAAP), companies generally used to show these debt issuance costs as an asset (a deferred charge), which was amortised on a straight- line basis to the relevant expense (e.g., legal fees) over the life of the bonds. Under US GAAP, debt issuance costs are deducted from the related debt liability. Companies reporting under US GAAP may still report debt issuance costs for lines of credit as an asset because the SEC indicated that it would not object to this treatment.
IFT support team
Hey IFT Support team, in the example at 7:42 you mention that the book value of the bond today is above par, If the current rate that the market demands is 9% and the coupon is 8.5%, how is the bond going to be traded at above par? Why do we consider the effective rate of the bond, present value discounting should happen on the basis of prevalent discount rates right and not the Effective discount rate? and so the solution should be below par, right?
Please clarify
Thanks!
I guess it depends on if you choose to account the bond at fair value or not. If not, the current yield and therefore the fair value is ignored after issuance
When bonds are reported at amortized costs, we only consider the market rate at the time of issuance and the current market rate is ignored. If the company chooses to use the fair value reporting option, the current market rate will be considered. This point is discussed on the next slide following the example.
IFT Support Team
Hi,
shouldn't the Gain from bonds' redemption be = Book value - Redemption price ?
Thanks and keep up the good work
from France
Gain or loss = Redemption price - Book value of the bond liability at the reacquisition date
If the redemption price is higher than book value, a loss will be reported. For example, if redemption price = 1,020,000 and book value = 990,000, the loss will be 30,000. If the redemption price is lower than the book value, a gain will be reported.
IFT Support Team
@@IFT-CFA thanks !
I think you are right, that makes more sense; both are correct tho.
hi team are these still updated for the 2020 dec l1
Yes they are.
IFT support team