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CHAPTER 14
LONG-TERM FINANCIAL LIABILITIES
CHAPTER STUDY OBJECTIVES
1. Understand the nature of long-term debt financing arrangements. Incurring long-term
debt is often a formal procedure. Corporation bylaws usually require the approval of the board of
directors and the shareholders before bonds can be issued or other long-term debt
arrangements can be contracted. Generally, long-term debt has various covenants or
restrictions. The covenants and other terms of the agreement between the borrower and the
lender are stated in the bond indenture or note agreement. Notes are similar in substance to
bonds but do not trade as readily in capital markets, if at all.
The variety of types of bonds and notes is a result of attempts to attract capital from different
investors and risk takers and to satisfy the issuers’ cash flow needs.
External credit rating agencies rate bonds and assign a credit rating based on the riskiness. The
credit rating helps investors decide whether to invest in a particular bond. Companies
sometimes extinguish debt early using a defeasance arrangement. In a defeasance
arrangement, funds are deposited into a trust and the trust continues to make the regularly
scheduled payments until maturity.
By using debt financing, companies can maximize income through the use of leverage. Capital-
intensive industries often have higher levels of debt. Continued access to low-cost debt is
important for maximizing shareholder value.
2. Understand how long-term debt is measured and accounted for. The investment
community values a bond at the present value of its future cash flows, which consist of interest
and principal. The rate that is used to calculate the present value of these cash flows is the
interest rate that provides an acceptable return on an investment that matches the issuer’s risk
characteristics. The interest rate written in the terms of the bond indenture and ordinarily
appearing on the bond certificate is the stated, coupon, or nominal rate. This rate, which is set
by the issuer of the bonds, is expressed as a percentage of the bond’s face value, which is also
called the par value, principal amount, or maturity value. If the rate used by the buyers differs
from the stated rate, the bond’s present value calculated by the buyers will differ from the bond’s
face value. The difference between the bond’s face value and the present value is either a
discount or a premium. Long-term debt is measured at fair value on initial recognition, including
transaction costs where the instruments will subsequently be valued at amortized cost.
Subsequently, the instruments are measured at amortized cost or, in certain limited situations,
fair value, under the fair value option.
The discount (premium) is amortized and charged (credited) to interest expense over the period
of time that the bonds are outstanding. IFRS requires the effective-interest method; however,
ASPE allows a choice and often smaller private entities use the straight-line method.
Bonds and notes may be issued with zero interest or for a non-monetary consideration.
Measurement of the bonds and the consideration must reflect the underlying substance of the
transaction. In particular, reasonable interest rates must be imputed. The fair value of the debt
and of the non-monetary consideration should be used to value the transaction.
3. Understand when long-term debt is recognized and derecognized, including how to
account for troubled debt restructurings. At the time of reacquisition, the unamortized
premium or discount and any costs of issue that apply to the debt must be amortized up to the
reacquisition date. The amount that is paid on extinguishment or redemption before maturity,
including any call premium and expense of reacquisition, is the reacquisition price. On any
specified date, the debt’s net carrying amount is the amount that is payable at maturity, adjusted
for unamortized premium or discount and the cost of issuance. Any excess of the net carrying
amount over the reacquisition price is a gain from extinguishment, whereas the excess of the
reacquisition price over the net carrying amount is a loss from extinguishment. Legal
defeasance results in derecognition of the liability. In substance defeasance does not.
Where debt is settled by exchanging the old debt with new debt (generally in troubled debt
situations), it is treated as a settlement where the terms of the agreements are substantially
different, including a size test, and where the new debt is with a new lender. If not treated as a
settlement, it is treated as a modification of the old debt and a new interest rate is imputed.
Off–balance sheet financing is an attempt to borrow funds in such a way that the obligations are
not recorded. One type of off–balance sheet financing involves the use of certain variable
interest entities. Accounting standard setters are studying this area with the objective of coming
up with a new definition of what constitutes the reporting entity.
4. Explain how long-term debt is presented on the statement of financial position.
Companies that have large amounts and many issues of long-term debt often report only one
amount in the SFP and support this with comments and schedules in the accompanying notes.
Long-term debt that matures within one year should be reported as a current liability, unless it
will be retired without using current assets. If the debt is to be refinanced, converted into shares,
or retired from a bond retirement fund, it should continue to be reported as non-current and
accompanied by a note explaining the method to be used in its liquidation unless certain
conditions are met.
5. Identify disclosure requirements. Note disclosures are significant and generally indicate
the nature of the liabilities, maturity dates, interest rates, call provisions, conversion privileges,
restrictions imposed by the creditors, and assets designated or pledged as security as well as
other details.
6. Calculate and interpret key ratios related to solvency and liquidity. Debt to total assets
and times interest earned are two ratios that provide information about debt-paying ability and
long-term solvency.
7. Identify major differences in accounting standards between IFRS and ASPE, and what
changes are expected in the near future. IFRS and ASPE are largely converged as they
relate to long-term debt. Small differences relate to whether the debt is presented as current or
non-current and in measurement. For example, ASPE has measurement standards for related-
party transactions. The standard setters are working on several large projects, including the
conceptual framework and financial instruments with the characteristics of equity.
MULTIPLE CHOICE—Conceptual
Answer No. Description
a 1. Liability identification
b 2. Restrictions in restricted covenants
d 3. Bond vocabulary
b 4. Bond vocabulary
c 5. Bond vocabulary
d 6. Rate of interest earned by bondholders
b 7. Bond premium and interest rates
a 8. Interest and discount amortization
b 9. Effective-interest amortization method
d 10. Impact of effective-interest method
c 11. Bonds issued between interest dates
d 12. Bonds issued between interest dates
b 13. Valuation of bonds
d 14. Bond face value
b 15. Notes with zero interest or non-monetary consideration
d 16. Fair value option
d 17. Note issued for property, goods, or services
c 18. Callable bonds
a 19. Debt refunding
c 20. Modification of terms in troubled debt restructuring
d 21. Gain/loss on troubled debt restructuring
b 22. Gain/loss on troubled debt restructuring
c 23. Creditor’s calculations for modification of terms
a 24. In substance defeasance
d 25. Off-balance-sheet financing
a 26. Presentation
b 27. Presentation
b 28. Long-term debt disclosures
d 29. Disclosure
b 30. Disclosure
c 31. Times interest earned ratio
a 32. Debt to total assets ratio
d 33. Times interest earned ratio
b 34. Debt to total assets ratio
b 35. Comparison of IFRS and ASPE
a 36. Comparison of IFRS and ASPE
MULTIPLE CHOICE—Computational
Answer No. Description
a 37. Calculate the present value of bond principal.
b 38. Calculate the present value of bond interest.
a 39. Calculate the issue price of bonds.
b 40. Interest expense using effective-interest method
c 41. Interest expense using effective-interest method
a 42. Interest on noninterest-bearing note
c 43. Interest on instalment note payable
a 44. Calculate balance of note payable.
c 45. Calculate proceeds from bond issue.
b 46. Calculate balance in bonds payable account.
c 47. Calculate balance in bonds payable account.
b 48. Calculate bond interest expense.
b 49. Calculate gain on retirement of bonds.
a 50. Calculate gain or loss on retirement of bonds.
c 51. Calculate loss on retirement of bonds.
b 52. Bond retirement with call premium
b 53. Calculate loss on retirement of bonds.
b 54. Transfer of equipment in debt restructure
d 55. Recognizing gain on debt restructure
b 56. Interest and troubled debt restructuring
b 57. Calculate loss on retirement of bonds.
a 58. Calculate loss on retirement of bonds.
b 59. Calculate gain or loss on retirement of bonds.
c 60. Calculate gain or loss on retirement of bonds.
d 61. Classification of gains from troubled debt restructuring
d 62. Calculate times interest earned ratio.
c 63. Calculate debt to total assets ratio.
EXERCISES
Item Description
E14-64 Underwriting for bond issues
E14-65 Terms related to long-term debt
E14-66 Amortization of discount or premium
E14-67 Bond issue price and discount amortization
E14-68 Note issued for cash and other rights
E14-69 Note issued for non-cash consideration
E14-70 Entries for bonds payable
E14-71 Sale and subsequent buyback of bonds
E14-72 Retirement of bonds
E14-73 Early extinguishment of debt
E14-74 Accounting procedures for bond redemptions
E14-75 Accounting for a troubled debt settlement
E14-76 Accounting for troubled debt restructuring
E14-77 Accounting for troubled debt
PROBLEMS
Item Description
P14-78 Bond interest and discount amortization
P14-79 Bond interest and discount amortization
P14-80 Fair value option
P14-81 Entries for bonds payable
P14-82 Entries for bonds payable
P14-83 Accounting for bond issuance and retirement
P14-84 Bond accounting, ratios, debt covenants
P14-85 Accounting for a troubled debt settlement
MULTIPLE CHOICE—Conceptual
1. Which of the following is NOT generally classified as a long-term liability?
a) stock dividends distributable
b) pension liabilities
c) mortgages payable
d) lease liabilities
Answer: a
Difficulty: Easy
Learning Objective: Understand the nature of long-term debt financing arrangements.
Section Reference: Understanding Debt Instruments Measurement
CPA: Financial Reporting
Bloomcode: Knowledge
2. Restrictions included in restricted covenants do NOT generally include
a) working capital restrictions.
b) limits on executive compensation.
c) dividend restrictions.
d) limitations on incurring additional debt.
Answer: b
Difficulty: Easy
Learning Objective: Understand the nature of long-term debt financing arrangements.
Section Reference: Understanding Debt Instruments Measurement
CPA: Financial Reporting
Bloomcode: Knowledge
3. A contract representing the covenants and other terms of the agreement between the issuer
of bonds and the lender is known as a
a) bond debenture.
b) long-term note payable.
c) registered bond.
d) bond indenture.
Answer: d
Difficulty: Easy
Learning Objective: Understand the nature of long-term debt financing arrangements.
Section Reference: Understanding Debt Instruments Measurement
CPA: Financial Reporting
Bloomcode: Knowledge
4. The term used for bonds that are backed by collateral is
a) convertible bonds.
b) debenture bonds.
c) secured bonds.
d) callable bonds.
Answer: c
Difficulty: Easy
Learning Objective: Understand the nature of long-term debt financing arrangements.
Section Reference: Understanding Debt Instruments Measurement
CPA: Financial Reporting
Bloomcode: Knowledge
5. Bonds frequently used by schools and municipalities that mature in instalments are called
a) convertible bonds.
b) revenue bonds.
c) serial bonds.
d) callable bonds.
Answer: c
Difficulty: Easy
Learning Objective: Understand the nature of long-term debt financing arrangements.
Section Reference: Understanding Debt Instruments Measurement
CPA: Financial Reporting
Bloomcode: Knowledge
6. The rate of interest actually earned by bondholders is called the
a) stated rate.
b) coupon rate.
c) dividend rate.
d) effective yield or market rate.
Answer: d
Difficulty: Easy
Learning Objective: Understand how long-term debt is measured and accounted for.
Section Reference: Measurement
CPA: Financial Reporting
Bloomcode: Knowledge
7. Mars Corp. issued ten-year bonds with a maturity value of $400,000. If the bonds were issued
at a premium, this indicates that
a) the market rate was higher than the stated rate.
b) the stated rate was higher than the market rate.
c) the market and stated rates were the same.
d) no relationship exists between the two rates.
Answer: b
Difficulty: Medium
Learning Objective: Understand how long-term debt is measured and accounted for.
Section Reference: Measurement
CPA: Financial Reporting
Bloomcode: Comprehension
8. If bonds are initially sold at a discount and the straight-line method of amortization is used,
interest expense in the earlier years will be
a) higher than it would have been had the effective-interest method of amortization been used.
b) less than it would have been had the effective-interest method of amortization been used.
c) the same as it would have been had the effective-interest method of amortization been used.
d) less than the stated rate of interest.
Answer: a
Difficulty: Medium
Learning Objective: Understand how long-term debt is measured and accounted for.
Section Reference: Measurement
CPA: Financial Reporting
Bloomcode: Comprehension
9. Using the effective-interest method of bond discount or premium amortization, the periodic
interest expense is equal to the
a) stated rate multiplied by the face value of the bonds.
b) market rate multiplied by the beginning-of-period carrying value of the bonds.
c) stated rate multiplied by the beginning-of-period carrying value of the bonds.
d) market rate multiplied by the face value of the bonds.
Answer: b
Difficulty: Medium
Learning Objective: Understand how long-term debt is measured and accounted for.
Section Reference: Measurement
CPA: Financial Reporting
Bloomcode: Comprehension
10. When the effective-interest method is used to amortize bond premium or discount, the
periodic amortization will
a) increase if the bonds were issued at a discount.
b) decrease if the bonds were issued at a premium.
c) increase if the bonds were issued at a premium.
d) increase if the bonds were issued at either a discount or a premium.
Answer: d
Difficulty: Medium
Learning Objective: Understand how long-term debt is measured and accounted for.
Section Reference: Measurement
CPA: Financial Reporting
Bloomcode: Comprehension
11. If bonds are issued between interest dates, the entry on the books of the issuing corporation
could include a
a) debit to Interest Payable.
b) credit to Interest Receivable.
c) credit to Interest Expense.
d) credit to Unearned Interest.
Answer: c
Difficulty: Medium
Learning Objective: Understand how long-term debt is measured and accounted for.
Section Reference: Measurement
CPA: Financial Reporting
Bloomcode: Knowledge
12. When the interest payment dates of a bond are May 1 and November 1, and a bond issue is
sold on June 1, the amount of cash received by the issuer will be
a) decreased by accrued interest from June 1 to November 1.
b) decreased by accrued interest from May 1 to June 1.
c) increased by accrued interest from June 1 to November 1.
d) increased by accrued interest from May 1 to June 1.
Answer: d
Difficulty: Medium
Learning Objective: Understand how long-term debt is measured and accounted for.
Section Reference: Measurement
CPA: Financial Reporting
Bloomcode: Comprehension
13. How should a long-term bond initially be valued?
a) at the future value of the future cash flows
b) at the present value of the future cash flows
c) at the present value of the interest to be paid
d) at the maturity value of the bond
Answer: b
Difficulty: Easy
Learning Objective: Understand how long-term debt is measured and accounted for.
Section Reference: Measurement
CPA: Financial Reporting
Bloomcode: Knowledge
14. A bond’s face value is also called
a) the par value or the present value.
b) the principal amount or the present value.
c) the future value or the maturity value.
d) the par value or the maturity value.
Answer: d
Difficulty: Easy
Learning Objective: Understand how long-term debt is measured and accounted for.
Section Reference: Measurement
CPA: Financial Reporting
Bloomcode: Knowledge
15. If a long-term note is issued with zero interest or for non-monetary consideration,
a) the debtor must first try to value the non-monetary asset(s) involved in the transaction.
b) a reasonable interest rate must be imputed.
c) the debtor always tries to create a gain with such a transaction.
d) the note is a non-monetary liability.
Answer: b
Difficulty: Medium
Learning Objective: Understand how long-term debt is measured and accounted for.
Section Reference: Measurement
CPA: Financial Reporting
Bloomcode: Comprehension
16. When valuing financial instruments at fair value (the fair value option),
a) ASPE allows this option only for certain financial instruments.
b) IFRS allows this for all financial instruments.
c) IFRS requires that this option be used only where fair value does not result in more relevant
information.
d) IFRS requires that non-performance risk be included in the fair value measurement.
Answer: d
Difficulty: Hard
Learning Objective: Understand how long-term debt is measured and accounted for.
Section Reference: Measurement
CPA: Financial Reporting
Bloomcode: Comprehension
17. When a note payable is issued for property, goods, or services, the present value of the
note should preferably be measured by
a) the present value of the property, goods or services.
b) the fair value of the property, goods, or services.
c) the fair value of the debt instrument.
d) the present value of the debt instrument.
Answer: d
Difficulty: Medium
Learning Objective: Understand how long-term debt is measured and accounted for.
Section Reference: Measurement
CPA: Financial Reporting
Bloomcode: Comprehension
18. A ten-year bond was issued in 2017 at a discount with a call provision to retire the bonds.
When the bond issuer exercised the call provision on an interest date in 2016, the carrying
value of the bond was less than the call price. The amount of bond liability removed from the
accounts in 2019 would be the
a) call price.
b) maturity value.
c) carrying value.
d) face amount plus unamortized discount.
Answer: c
Difficulty: Medium
Learning Objective: Understand when long-term debt is recognized and derecognized, including
how to account for troubled debt restructurings.
Section Reference: Recognition and Derecognition
CPA: Financial Reporting
Bloomcode: Comprehension
19. If a debt refunding is viewed as a modification or renegotiation, then
a) a new effective-interest rate is calculated.
b) a gain or loss is recorded.
c) there is no change in the accounting for the debt.
d) the old debt is derecognized.
Answer: a
Difficulty: Medium
Learning Objective: Understand when long-term debt is recognized and derecognized, including
how to account for troubled debt restructurings.
Section Reference: Recognition and Derecognition
CPA: Financial Reporting
Bloomcode: Comprehension
20. In a troubled debt restructuring in which the debt is continued with modified terms and the
carrying amount of the debt is less than the total future cash flows,
a) an extraordinary gain should be recognized by the debtor.
b) a gain should be recognized by the debtor.
c) a new effective-interest rate must be calculated.
d) no interest expense or revenue should be recognized in the future.
Answer: c
Difficulty: Medium
Learning Objective: Understand when long-term debt is recognized and derecognized, including
how to account for troubled debt restructurings.
Section Reference: Recognition and Derecognition
CPA: Financial Reporting
Bloomcode: Comprehension
21. A troubled debt restructuring will generally result in a
a) loss by the debtor and a gain by the creditor.
b) loss by both the debtor and the creditor.
c) gain by both the debtor and the creditor.
d) gain by the debtor and a loss by the creditor.
Answer: d
Difficulty: Medium
Learning Objective: Understand when long-term debt is recognized and derecognized, including
how to account for troubled debt restructurings.
Section Reference: Recognition and Derecognition
CPA: Financial Reporting
Bloomcode: Comprehension
22. In a troubled debt restructuring in which the debt is settled by a transfer of assets with a fair
market value less the carrying amount of the debt, the debtor would
a) not recognize a gain or loss on the settlement.
b) recognize a gain on the settlement.
c) recognize a loss on the settlement.
d) only record a memo in the general ledger.
Answer: b
Difficulty: Medium
Learning Objective: Understand when long-term debt is recognized and derecognized, including
how to account for troubled debt restructurings.
Section Reference: Recognition and Derecognition
CPA: Financial Reporting
Bloomcode: Comprehension
23. In a troubled debt restructuring in which the debt is continued with modified terms and the
carrying amount of the debt is less than the total future cash flows, the creditor should
a) calculate a new effective-interest rate.
b) not recognize a loss.
c) calculate its loss using the historical effective rate of the loan.
d) calculate its loss using the current effective rate of the loan.
Answer: c
Difficulty: Hard
Learning Objective: Understand when long-term debt is recognized and derecognized, including
how to account for troubled debt restructurings.
Section Reference: Recognition and Derecognition
CPA: Financial Reporting
Bloomcode: Comprehension
24. When the debtor sets aside money in a trust such that the investment and any return will be
sufficient to pay the principal and the interest to the creditor, but the creditor does NOT release
the company from the primary obligation to settle the debt, this type of arrangement is known as
a) in substance defeasance.
b) in substance refunding.
c) substantive repayment.
d) legal defeasance.
Answer: a
Difficulty: Easy
Learning Objective: Understand when long-term debt is recognized and derecognized, including
how to account for troubled debt restructurings.
Section Reference: Recognition and Derecognition
CPA: Financial Reporting
Bloomcode: Knowledge
25. Which of the following arrangements would NOT represent a possible example of “off-
balance-sheet financing”?
a) non-consolidated subsidiaries
b) variable interest entities
c) operating leases
d) capital or financing leases
Answer: d
Difficulty: Medium
Learning Objective: Understand when long-term debt is recognized and derecognized, including
how to account for troubled debt restructurings.
Section Reference: Recognition and Derecognition
CPA: Financial Reporting
Bloomcode: Comprehension
26. How should long-term debt be reported if it matures within one year and the company has
arranged, before its current year end, to convert the debt into shares?
a) as non-current and accompanied with a note explaining the method to be used in its
liquidation
b) in a special section between liabilities and shareholders’ equity
c) as non-current
d) as a current liability
Answer: a
Difficulty: Medium
Learning Objective: Explain how long-term debt is presented on the statement of financial
position.
Section Reference: Presentation, Disclosure, and Analysis
CPA: Financial Reporting
Bloomcode: Comprehension
27. Complex financial instruments make the distinction between debt and equity
a) easier to define.
b) harder to define.
c) less important.
d) irrelevant.
Answer: b
Difficulty: Medium
Learning Objective: Explain how long-term debt is presented on the statement of financial
position.
Section Reference: Presentation, Disclosure, and Analysis
CPA: Financial Reporting
Bloomcode: Comprehension
28. Note disclosures for long-term debt generally include all of the following EXCEPT
a) assets pledged as security.
b) names of specific creditors.
c) restrictions imposed by creditors.
d) call provisions and conversion privileges.
Answer: b
Difficulty: Easy
Learning Objective: Identify disclosure requirements.
Section Reference: Disclosures
CPA: Financial Reporting
Bloomcode: Knowledge
29. Which of the following is a required disclosure with respect to liabilities?
a) who the creditors are and how much is owed to each
b) payment terms for trade accounts payable
c) future payments and maturity amounts for each of the next ten years
d) details of assets pledged as collateral
Answer: d
Difficulty: Medium
Learning Objective: Identify disclosure requirements.
Section Reference: Disclosures
CPA: Financial Reporting
Bloomcode: Knowledge
30. Which of the following is NOT a required disclosure with respect to liabilities?
a) maturity dates and interest rates for each outstanding bond issue
b) payment terms for trade accounts payable
c) future payments and maturity amounts for each of the next five years
d) details of assets pledged as collateral
Answer: b
Difficulty: Medium
Learning Objective: Identify disclosure requirements.
Section Reference: Disclosures
CPA: Financial Reporting
Bloomcode: Knowledge
31. The times interest earned ratio is calculated by dividing
a) net income by interest expense.
b) income before taxes by interest expense.
c) income before income taxes and interest expense by interest expense.
d) net income and interest expense by interest expense.
Answer: c
Difficulty: Easy
Learning Objective: Calculate and interpret key ratios related to solvency and liquidity.
Section Reference: Analysis
CPA: Financial Reporting
Bloomcode: Knowledge
32. The debt to total assets ratio is calculated by dividing
a) total liabilities by total assets.
b) long-term liabilities by total assets.
c) current liabilities by total assets.
d) total assets by total liabilities.
Answer: a
Difficulty: Easy
Learning Objective: Calculate and interpret key ratios related to solvency and liquidity.
Section Reference: Analysis
CPA: Financial Reporting
Bloomcode: Knowledge
33. The times interest earned ratio measures
a) the amount of interest expense related to long-term debt.
b) the percentage of total assets financed by creditors.
c) the profitability of an enterprise.
d) an enterprise’s ability to meet interest payments as they come due.
Answer: d
Difficulty: Medium
Learning Objective: Calculate and interpret key ratios related to solvency and liquidity.
Section Reference: Analysis
CPA: Financial Reporting
Bloomcode: Comprehension
34. The debt to total assets earned ratio measures
a) the amount of debt related to interest expense.
b) the percentage of total assets financed by creditors.
c) the likelihood an enterprise will default on its obligations.
d) the profitability of an enterprise.
Answer: b
Difficulty: Medium
Learning Objective: Calculate and interpret key ratios related to solvency and liquidity.
Section Reference: Analysis
CPA: Financial Reporting
Bloomcode: Comprehension
35. Which of the following statements is true?
a) Refinanced long-term debt may be reported as long-term rather than current if the refinancing
has been completed before the date of the financial statements, according to ASPE; and before
the date of the issue of the financial statements, according to IFRS.
b) Refinanced long-term debt may be reported as long-term rather than current if the refinancing
has been completed before the date of the financial statements, according to IFRS; and before
the date of the issue of the financial statements, according to ASPE.
c) Refinanced long-term debt may be reported as long-term rather than current if the refinancing
has been completed before the date of the financial statements, according to IFRS and ASPE.
d) Refinanced long-term debt may be reported as long-term rather than current if the refinancing
has been completed before the issue of the financial statements, according to IFRS and ASPE.
Answer: b
Difficulty: Medium
Learning Objective: Identify major differences in accounting standards between IFRS and
ASPE, and what changes are expected in the near future.
Section Reference: IFRS/ASPE Comparison
CPA: Financial Reporting
Bloomcode: Knowledge
36. Which of the following statements is correct?
a) IFRS requires the effective-interest method to be used to amortize bond premiums and
discounts; ASPE permits either the effective-interest method or the straight-line method.
b) ASPE requires the effective-interest method to be used to amortize bond premiums and
discounts; IFRS permits either the effective-interest method or the straight-line method.
c) Both IFRS and ASPE require the effective-interest method to be used to amortize bond
premiums and discounts.
d) Both IFRS and ASPE permit either the effective-interest method or the straight-line method to
be used to amortize bond premiums and discounts.
Answer: a
Difficulty: Medium
Learning Objective: Identify major differences in accounting standards between IFRS and
ASPE, and what changes are expected in the near future.
Section Reference: IFRS/ASPE Comparison
CPA: Financial Reporting
Bloomcode: Knowledge
