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10-Year Boonds Issuance Overview

The entity issued 10-year bonds with a face value of 200,000 at an interest rate of 8%, issued at 195,000 and redeemable at a 5% premium. The effective interest rate (EIR) is 8.72%, and the fair value of the bond is currently 187,000, reflecting changes in interest rates and the entity's credit risk. Future cash flows are projected to be 16,000 annually for the first nine years and 226,000 in the tenth year.

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Pawan Shrestha
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10 views5 pages

10-Year Boonds Issuance Overview

The entity issued 10-year bonds with a face value of 200,000 at an interest rate of 8%, issued at 195,000 and redeemable at a 5% premium. The effective interest rate (EIR) is 8.72%, and the fair value of the bond is currently 187,000, reflecting changes in interest rates and the entity's credit risk. Future cash flows are projected to be 16,000 annually for the first nine years and 226,000 in the tenth year.

Uploaded by

Pawan Shrestha
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd

Entity issued 10 year boonds At the reporting date

Face value 200000 LIBOR is now 6%


Fixed interrest rate 8% Fair value of bond is 187000
Issued at 195000
will be redeemed at premium of 5%
LIBOR 5%

1. Future cash flows


Year cash flows
0 -195000
1 16000
2 16000
3 16000
4 16000
5 16000
6 16000
7 16000
8 16000
9 16000
10 226000

Initial recognition
EIR 8.72% Bank A/C Dr 195000
To FL at Amortized Cost A/C
Amortization schedule:
Year Opening Interest Payment Closing
1 195000 17000.7 16000 196001
2 196001 17087.9 16000 197089
3 197089 17182.7 16000 198271
4 198271 17285.9 16000 199557
5 199557 17398 16000 200955
6 200955 17519.8 16000 202475
7 202475 17652.3 16000 204127
8 204127 17796.4 16000 205924
9 205924 17953 16000 207877
10 207877 18123.3 226000 0

year 1 end
Interest expenses A/C …....Dr 17000.656382
To FL at Amortized Cost A/C 17000.656381606

FL at Amortized Cost A/C…...Dr 16000


To Bank A/C 16000
195000
Entity issued 10 year boonds At the reporting date
Face value 200000 LIBOR is now 6%
Fixed interrest rate 8% Fair value of bond is 187000
Issued at 195000
will be redeemed at premium of 5%
LIBOR 5%

FL measured at FVTPL
1. Future cash flows
Year cash flows
0 -195000
1 16000
2 16000
3 16000
4 16000
5 16000
6 16000
7 16000
8 16000
9 16000
10 226000

EIR 8.72% ( in other examples, there was no discount/premium/processing chargees th

EIR 8.72%
LIBOR 5%
Instrument speciific return 3.72%

At year 1 end
LIBOR 6%
Instrument specific return 3.72%
9.72%

Year Cash flows PVF@9.72%


Present value
2 16000 0.911411 14582.57
3 16000 0.83067 13290.72
4 16000 0.757081 12113.3
5 16000 0.690012 11040.2
6 16000 0.628885 10062.15
7 16000 0.573172 9170.757
8 16000 0.522395 8358.328
9 16000 0.476117 7617.871
10 226000 0.433938 98070.02
184305.9
t/premium/processing chargees thus EIR =Interest rate)

Fair value
Opening 195000
PV 184305.9
Difference 10694.08 (due to change in interest rate

FV 187000
PV 184305.9
Diff 2694.084 (due to entity's own credit risk)

Entry
FL at FVTPL A/C…..Dr 8000
OCI A/C…..Dr 2694.084
To SoPL A/C 10694.08

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