International Financial Statement Analysis Workbook, 3rd Edition

CHAPTER 10 NON-CURRENT (LONG-TERM) LIABILITIES

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

• determine the initial recognition, initial measurement, and subsequent measurement of bonds;
• describe the effective interest method and calculate interest expense, amortisation of bond discounts/premiums, and interest payments;
• explain the derecognition of debt;
• describe the role of debt covenants in protecting creditors;
• describe the financial statement presentation of and disclosures relating to debt;
• explain motivations for leasing assets instead of purchasing them;
• distinguish between a finance lease and an operating lease from the perspectives of the lessor and the lessee;
• determine the initial recognition, initial measurement, and subsequent measurement of finance leases;
• compare the disclosures relating to finance and operating leases;
• compare the presentation and disclosure of defined contribution and defined benefit pension plans;
• calculate and interpret leverage and coverage ratios.

SUMMARY OVERVIEW

• The sales proceeds of a bond issue are determined by discounting future cash payments using the market rate of interest at the time of issuance (effective interest rate). The reported interest expense on bonds is based on the effective interest rate.
• Future cash payments on bonds usually include periodic interest payments (made at the stated interest rate or coupon rate) and the principal amount at maturity.
• When the market rate of ...