Recognition and Measurement of Bonds

The initial accounting and measurement of bonds is undertaken in the following way.

When the bond is issued, it could be issued at par, discount or premium depending on the difference between the market interest rate and the bond’s coupon rate.

The initial issuance of the bond impacts the balance sheet and the cash flow statement as follows:

Financial Statement	Impact
Balance Sheet	Both assets and liabilities are increased by the amount of sales proceeds. On the asset side, the cash is increased On the liability side, a liability called Bonds Payable. For a par bond, this is equal to the face value of the bond. For a discount/premium bond, this is equal to the amount based on the current market price. The amount is shown as Face Value +/- Premium or Discount.
Cash Flow Statement	The sales proceeds received are reported as financing activity.

The issuance costs related to the bond issue such as printing fees, legal expenses, and commissions are reported as follows:

• Under IFRS, issuance costs are included in the liability, bonds payable. The bond payables are reduced by the amount of issuance costs.
• Under US GAAP, issuance costs are shown as an asset (a deferred charge) which is amortized using straight-line method over the life of the bond.
• Under both IFRS and US GAAP, the cash outflow is reported as a financing activity. The amount is usually netted against the bond proceeds.