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1) Is it true that the long-term debt shown in SOFP is the total value of a debt which the company has borrowed and now they have to return back to its debtholders. For example, if we have borrowed $100m 10% on nominal value of $100 in long-term bond which is redeemed in 10 years time. This means that the company has borrowed 1m units of bonds each on a nominal value of $100 and SOFP will be showing $100m total value of a bond as long-term liabilities.
2) The interest of $5m p.a ($100m x 5%) will be paid to our bondholders until the 10 years period of a bond. After 10 years company is obliged to pay back the debt it has borrowed. So, company is going to redeem the bond on its nominal value and the total debt of $100m will be paid to bondholders on maturity date plus the ten years interest paid each year.
3) When we’ve paid all the debt of the company of $100m; we will remove the debt of $100m from our SOFP BUT in case company has only paid $80m to bondholders it is still obliged to pay back $20 out of total $100m debt.
Sorry to ask such a lengthy question. I hope you would not mind. Thanks for your time & efforts 🙂
1. Yes. On the SOFP we show the nominal value of the amount that has been borrowed.
2. The interest is paid each year. At the end of 10 years the principal of $100m will be repaid (plus a premium if that was part of the original agreement).
3. They would not only repay $80M. If they had borrowed $100M then they have to repay $100M (plus maybe a premium as mentioned in (2) )
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