masb 24 financial instrument disclosure presentation n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
MASB 24 FINANCIAL INSTRUMENT: DISCLOSURE & PRESENTATION PowerPoint Presentation
Download Presentation
MASB 24 FINANCIAL INSTRUMENT: DISCLOSURE & PRESENTATION

Loading in 2 Seconds...

play fullscreen
1 / 25

MASB 24 FINANCIAL INSTRUMENT: DISCLOSURE & PRESENTATION - PowerPoint PPT Presentation


  • 104 Views
  • Uploaded on

MASB 24 FINANCIAL INSTRUMENT: DISCLOSURE & PRESENTATION. FINANCIAL ASSETS FINANCIAL LIABILITY EQUITY INSTRUMENT. DEFINITION. FINANCIAL INSTRUMENT Any contract that give rise to BOTH a financial asset of the enterprise and financial liability OR equity of ANOTHER enterprise. DEFINITION.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'MASB 24 FINANCIAL INSTRUMENT: DISCLOSURE & PRESENTATION' - cachez


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
masb 24 financial instrument disclosure presentation

MASB 24 FINANCIAL INSTRUMENT: DISCLOSURE & PRESENTATION

FINANCIAL ASSETS

FINANCIAL LIABILITY

EQUITY INSTRUMENT

definition
DEFINITION

FINANCIAL INSTRUMENT

  • Any contract that give rise to BOTH a financial asset of the enterprise and financial liability OR equity of ANOTHER enterprise
definition1
DEFINITION

FINANCIAL ASSET

  • Cash
  • Contractual right to receive cash or another financial asset from another enterprise
  • Contractual right to exchange financial instrument with another enterprise under condition that potentially favourable; or
  • Equity instrument of another enterprise
definition2
DEFINITION
  • EQUITY INSTRUMENT
    • any contract that evidences a residual interest in the assets of an enterprise after deducting all of its liabilities
definition3
DEFINITION

FINANCIAL LIABILITY

Any liability that is a contractual obligation

  • To deliver cash or another financial asset to another enterprise; or
  • To exchange financial instruments with another enterprise under condition that are potentially unfavourable
reporting requirement for financial liability
REPORTING REQUIREMENT FOR FINANCIAL LIABILITY
  • COMPANIES ACT 1965
    • To disclose separately long term and short term
      • Debentures
      • Bank loans and overdraft
      • Liabilities ( other than debentures , bank loans and overdraft)
      • Other amounts borrowed without security
    • Disclose the details of the contractual terms
reporting requirement for financial liability1
REPORTING REQUIREMENT FOR FINANCIAL LIABILITY

FRS 101

  • Long term liabilities should be disclose separately
  • Any provision
  • Non-current interest bearing liabilities
  • Additional line item (as required by standard)
1 bond
1. BOND
  • LONG TERM CONRACT under which a borrower agrees to make payments of interest and principal on specific dates to the holder of the bond
  • Commonly called loanstock
  • Long term debt issued by an enterprise to raise funds
  • The contract is called BOND INDENTURE
types of bond
Types of bond
  • Treasury bonds
  • Corporate bonds
  • Municipal bonds
  • Foreign bonds
term used
Term used
  • PAR VALUE: stated face value of the bond
  • COUPON (INTEREST) RATE : coupon payment
  • MARKET INTEREST RATE: effective market rate
  • MATURITY DATE: date on which the par value must be repaid (redeemed)
issues in accounting for bond
Issues in accounting for bond.
  • Recognition and measurement of the amounts of liability and cost that should be reflected in Balance Sheet and Income Statement because bond can be issued
    • At Par,
    • At Discount; or
    • At Premium and also
    • They can be converted into ordinary shares
ias 39 recognition and measurement
IAS 39:Recognition and measurement
  • Initial recognition: cost = FV of the consideration received
  • Subsequent measurement : at amortised cost
  • Gain and losses : credit or charged to IS
bond valuation
Bond Valuation

n

Vb= ∑ interest + Redemption sum

t =1 (1+ r )t (1+ r )n

= interest (PVIFA r , n) + Principal (PVIF r , n)

PVIFA = present value interest factor anuity

r = market interest rate

t = year

n = number of years

entries issuance at par
Entries : Issuance at par

Coupon Interest rate = market rate

  • At issuance

Dt cash RM xxx

Cr Bond RM xxx

2) Payment of interest

Dt. Interest expense RM xxx

Cr. Cash/payable RM xxx

3) At redemption date

Dt. Bond RM xxx

Cr. Cash RM xxx

issuance at discount
Issuance at discount
  • Issued for less than par value
  • Coupon Interest rate < market rate
  • Issue at discount when the issuer wishes to avoid paying high coupon rate
  • The discount is the difference between the par value and the issue price of the bond
  • The discount of the bond should be amortised over the term of the bond as an interest cost (borrowing cost)
  • The total interest expense is equal to the effective yield on the bond (market interest rate)
journal entries issuance at discount
journal entries : Issuance at discount
  • At issuance

Dt cash RM xxx

Dt Discount on bond RM xx

Cr Bond RM xxx

2) Payment of interest

Dt. Interest expense RM xxx

Cr. Discount on bond RM xxx

Cr. Cash/payable RM xxx

  • At redemption date

Dt. Bond (par value) RM xxx

Cr. Cash RM xxx

issuance at premium
Issuance at premium
  • Issued for more than par value
  • Coupon Interest rate > market rate
  • Issue at premium when the issuer wishes to attract investors to subscribe for the bond by offering higher coupon rate
  • The premium is the difference between the par value and the issue price of the bond
  • The premium on the bond should be amortised over the term of the bond
journal entries issuance at premium
Journal entries : Issuance at premium
  • At issuance

Dt cash RM xxx

Cr Premium on bond RM xx

Cr Bond RM xxx

2) Payment of interest

Dt. Interest expense RM xxx

Dt. Premium on bond RM xxx

Cr. Cash/payable RM xxx

  • At redemption date

Dt. Bond (par value) RM xxx

Cr. Cash RM xxx

method of amortisation of discount and premium
Method of Amortisation of discount and premium
  • Straight line method
    • Amortisation = amount of discount or premium over years to maturity
    • Interest expense = coupon interest +/- amortisation
method of amortisation of discount and premium1
Method of Amortisation of discount and premium
  • Effective interest rate method
    • For interest to reflect effective borrowing cost of the issuer
    • Amortisation = effective Interest - coupon interest
    • Effective interest = effective rate * carrying amount
    • Coupon interest = coupon rate * par value
  • If the different between carrying value and par value of the bond is significantly material, IAS 39 prescribes that the 2nd method should be used
example
Example
  • Illustration 1: issuance at par
  • Illustration 2: issuance at discount- amortisation using straight line method
  • Illustration 3 and 4: issuance at discount- amortisation using effective interest rate method
  • Illustration 5: issuance at premium
cost of bond
Cost of Bond
  • Cost incurred to acquire/issue the bond
  • How to account for it?
    • Expense by charging IS, or
    • Reduce related bond liability, or
    • Deferred by amortise it over term of bond
  • Practicability (materiality):
    • Immaterial – charged in IS as an expense
  • Material – deferred, not appropriate to write off immediately
classification and presentation of premium and discount
Classification and presentation of premium and discount
  • Discount :
    • Debit balance but does not satisfy asset definition
  • Premium:
    • Credit balance but does not satisfy liability or equity definition
views
Views
  • Bond liability presented at its PAR value
    • Premium and discount presented separately
    • Adv: reflect the amount at maturity
  • Bond liability presented at its CARRYING value
    • Discount : reduction to PAR value
    • Premium : Addition to PAR value
    • Adv: avoids debits / credits balance not satisfying assets and liability definition
appropriate presentation
Appropriate presentation
  • Presented at CARRYING amount with disclosure of
    • PAR value
    • Related discount/premium
    • Deferred transaction costs