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Hi,
I’d like to ask:
The extracts from the forecast financial position for Morada say:
Non-current Liabilities (6.2% redeemable bonds) is 120M.The question also says:
The bonds are redeemable in four years’ time at face value.My questions:
how do I know the 120M of NCL on the SOFP is stated at FACE VALUE so that Coupon rate is $6.2 per $100?Your answer to my question:
Face value means the same as nominal (or par) value, and this is what appears on the SOFP.My another question:
By just looking at: Non-current Liabilities (6.2% redeemable bonds) is 120M in the SOPF, my understanding is that such redeemable bonds can be discount, premium or par-value, so its book value stated in the SOFP may vary accordingly.
And your answer says Face value is what appears on the SOFP.
Is it a rule to state Face value of a bond in SOFP? or any sentences mentioned in the question that the bond is stated at Face value?Thanks
I repeat that regardless of the market value of the bonds, what appears on the SOFP is the nominal value (i.e. face value or par value). This is a financial accounting rule.
It may help you to watch my free lectures on this (and the relevant Paper FM (was F9) lectures).
After watching the video: source of finance-debt, I took a look at initial recognition and measurement of financial liabilities from IFRS 9, which says:
At initial recognition, financial liabilities are measured at fair value.
It seems that the redeemable bonds mentioned in the question is classified as financial liabilities.
If so, the bond at initial recognition should be measured at fair and its subsequent measurement should be based on fair value through profit or loss or amortized cost.
So, the $120M of bond in question is stated at par value or fair value?
Please help to clarify my confusion.
Thanks
The market value (fair value) of bonds is not the amount that the company owed to the investors – that is the price at which bond holders are buying and selling to each other.
The company’s liability remains the nominal (par) value and this is what appears on the SOFP.That is always the case in AFM (and in financial accounting as well, although this is not a financial accounts exam!). If they were originally issued at a price other than the nominal value then the difference would be dealt with in the reserves, but again, this is of no relevance for AFM.
(Think about share capital – this is a liability to shareholders, but again is always shown on the SOFP at nominal value, even though the shares were quite likely to have been issued at a premium. The premium would have gone to reserves as always in financial accounting.)
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