FA Module 10: Long-term (non-current) liabilities (overview)

(The attached PDF file has better formatting.)

Reading: chapter 10

●    § 2 bonds payable, excluding
    ○    Example 5 (Fair value disclosures of debt and financial instruments: Sony)
    ○    sub-section 2.4 (derecognition of debt)
    ○    Example 7 (Illustration of debt covenant disclosures: TORM A/S)
    ○    sub-section 2.6 (presentation and disclosure of long-term debt)
●    § 5 evaluating solvency: leverage and coverage ratios

Know the relations of interest expense, interest paid, changes in accrued interest, amortization of premium, and accrual of discount. The articulation is similar to that for all financial statement entries. Interest expense and interest income include amortization of premium and accrual of discount.

Insurers invest in long-term bonds, and often carry the investments at amortized cost. The same relation holds for interest income, interest received, changes in accrued interest, amortization of premium, and accrual of discount. A final exam problem for interest income may give

●    the face value of the bond
●    the annual or semi-annual coupon rate
●    the yield to maturity of the bond
●    the time until maturity of the bond

It might ask for the premium or discount at initial recognition and the amortization of premium or accrual of discount for a specified year.

IFRS 17 requires accretion of interest on the fulfilment cash flows and on the contractual service margin, as explained in the IFRS 17 modules. The concepts are similar to those in this module.

The modules on leases and on pension costs cover subsections 3 and 4 of chapter 10.

Know the types of debt covenants and their relation to financial ratios.