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Hello everyone,
Please help me in one technical accounting matter.
If any entity wants to 5 years Issue zero coupan bonds/debentures with contingent maturity amount i.e. maturity amount will be linked to Net profit of other entity like if entity net profit will be upto 10 Cr. then 20% will be premium, if entity net profit will be 10-15 Cr. then 30% will be premium on maturity.
I read Ind AS 109 but unable to find this type of situation. It will be FVTPL or Amortised cost method, whether derivatives accounting required?INDAS and this are same
Accounting Deep Discount Bonds – I GAAP & IFRS (caclubindia.com)
Redeemed at premium add up the value to redemption amount 100 in the example
Forgot to mention, when you amortise the bond, it can be only at par,discount or premium less issue costs. So technically follow zero coupon bond treatment and add premium on redemption amount because you only pay coupon unlike loans where principle and interest are repayes
Thanks for your response Yasawi, I will clear the example again.
As on Today we want to issue debentures on face value suppose Rs. 1,000/- we receive today. It will be matured after 2 years and maturity amount will be as follows:-
1. Profit after tax of that entity is lower than 10Cr. – 1200 will be maturity amount
2. Profit after tax of that entity is 10Cr. to 15 Cr. – 1500 will be maturity amount
3. Profit after tax of that entity is more than 15 Cr. – 1800 will be maturity amount.
We are following Ind As.
Requesting you also please let us know, whole amount impact PL or any impact in SOCE as well at maturity or every reporting date.
plz respond.Vina amortization doesn't have anything to do with the options you have. redemption is the final balance+coupon and you can add your premium over it
Vina amortization doesn't have anything to do with the options you have. redemption is the final balance+coupon and you can add your premium over it
You mean I will calculate PV of 1200 because it is mandatory outflow and then It will be Amortised as interest expense over the life and amount over the 1200 will be treated as premium on maturity?
No! Did you say a deep discount bond? It means it will be issued at discount and redeemed at par!! How much premium you'd pay is your wish and the closing balance is not the cash outflow.
Amount 250000 Issue costs 0 Initial liability 250000 257500 265600 274348 283795.8 Finance costs 8% 20000 20600 21248 21947.84 22703.67 Coupon 5% 12500 12500 12500 12500 12500 Final lliability 257500 265600 274348 283795.8 293999.5 Cr. Debenture liability 7500 8100 0 0 0 Dr. Finance costs 20000 20600 Cr. Cash 12500 12500 Redemption amount 306499.5 This is not a zero coupon but about redemption principle. Redemption years opening liability+(EIR-coupon)+Coupon. There is no way you can include 1200 in to the table.
Sorry Yasaswi, I know I am taking your precious time. If we can connect over other platform, I will also comfortable.
As per Ind AS 109 financial instruments, if this is financial liability then we have to calculate present value of future outflow that I don’t know that How much I will pay after 2 years (duration of Debentures).
I am accepting whole Face value today i.e. 1000 but maturity after 2 years would be 1200 or 1500 or 1800 because maturity amount is profit linked of that entity (slab given in earlier msg).
Now today I will calculate face value on which amount, 1200 is minimum we have to pay remaining depends on profit.
Please note that We will not pay any interest over the period, only premium will be the benefit.
Last one, required to remeasure every year or at maturity.All right this is some CFA valuation here but reporting has not defined it. End of your problems and this is the solution to Indas as well
Finally remember this, conceptual framework is what the principles are based on. Classification, presentation and measurement. But valuation is not reporting.
All the best, doubtlessly its all math cause we only do fair value reporting which means we take the results and put them into the financial statements. Thats our job. It is easy to read CFA material and they all market based evaluations which IFRS or INDAS doesn't have to define cause well already the five elements assets, liabilities, expenses, incomes and gains. Thats all we are supposed to do and hence reporters hire independent valuators to revalue assets. They have 3-4 valuations designated to CFA's in real estate business where reporters dont have access to. Cheers and this instrument is measured at amortized cost.
Amount 71.3 Issue costs Initial liability 71.3 76.291 81.63137 87.34557 93.45976 Finance costs 8% 4.991 5.34037 5.714196 6.11419 6.542183 Coupon 5% 0 0 0 0 0 Final liability 76.291 81.63137 87.34557 93.45976 100.0019 SEE? Its all the same a 100$ bond with 5 year maturity with 7% EIR and add premium on it.
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