Module 8 · FRA

Long-Term Liabilities and Equity

EN: Bond accounting at issuance and over time, leases, pensions.
VN: Hạch toán trái phiếu khi phát hành và trong kỳ, leases, pension.

1. Bond Issuance — Three Cases Core

Cash received vs face

Par Coupon = market rate → cash = face.
Discount Coupon < market rate → cash < face.
Premium Coupon > market rate → cash > face.

2. Bond Carrying Value & Interest Expense (Effective-Interest) Core

\[ \text{Int. expense}_t = \text{Carrying value}_{t-1} \times r_{market} \] \[ \text{Coupon paid} = \text{Face} \times r_{coupon} \] \[ \Delta\text{Carrying} = \text{Int. expense} - \text{Coupon paid} \]

Effect over time

Discount Carrying value rises toward face; interest expense rises each period.
Premium Carrying value falls toward face; interest expense falls each period.

Practice problem

Bond issued at discount: carrying value $940, market rate 6%. Coupon paid = $50. Compute interest expense and new carrying value.

Show solution

Int. expense = 940 × 0.06 = $56.40

ΔCV = 56.40 − 50 = +$6.40 (rises toward face)

New CV = 940 + 6.40

Int. exp $56.40; new CV $946.40

3. Lessee Accounting (IFRS 16 / ASC 842) Core

Lessee balance sheet

ROU asset Right-of-use asset = PV of lease payments.
Lease liab. = PV of lease payments at lease rate.
IFRS Single model — all leases on B/S; depreciation + interest expense on I/S.
US GAAP Two models: Finance lease (like IFRS) vs Operating lease (single straight-line lease expense).

4. Defined-Benefit Pension Concept

\[ \text{Funded status} = \text{FV of plan assets} - \text{PBO} \]

Components

PBO Projected benefit obligation (US GAAP) / DBO (IFRS).
Surplus Asset on B/S; deficit = liability on B/S.
Service cost Increase in obligation from current period of service.
Interest cost Discount rate × beginning PBO.

Practice problem

FV of plan assets $400M, PBO $450M. Compute funded status.

Show solution

Funded = 400 − 450

= −$50M (underfunded; liability on B/S)

Practice problem Practice

Practice problem

A 3-year bond is issued at par with face $1,000 and 5% annual coupon. Market rate at issuance = 5%. What is the carrying value at issuance?

Show solution

Coupon = market rate → bond issued at par.

Cash received = face value.

Carrying value = $1,000