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

About: Three cases — par (coupon = market rate), discount (coupon < market), premium (coupon > market). Cash received determines initial carrying value.Tóm tắt: 3 trường hợp: par (coupon = market), discount (coupon < market), premium (coupon > market).

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

About: Effective-interest method. Interest expense = market rate × beginning carrying value. Cash coupon stays fixed. Discount: CV rises toward par; Premium: CV falls toward par.Tóm tắt: Phương pháp lãi hiệu dụng. Int = market rate × CV đầu kỳ. Discount: CV tăng tới par. Premium: CV giảm về par.

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

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

About: IFRS 16 — single model, all leases on B/S as ROU asset and lease liability. US GAAP — finance leases mirror IFRS; operating leases use straight-line single expense.Tóm tắt: IFRS 16 thống nhất một mô hình. US GAAP: finance lease giống IFRS, operating lease dùng straight-line.

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

About: Funded status = plan assets − PBO. Surplus = asset on B/S; deficit = liability. Service cost (current) and interest cost go through P&L; actuarial G/L go through OCI (IFRS).Tóm tắt: Funded status = assets − PBO. Service cost + interest qua P&L. Actuarial G/L qua OCI (IFRS).

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

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