Asked by Akarshna Premanand on Jun 30, 2024
Verified
The effective interest amortization method:
A) Allocates bond interest expense over the bond's life using a changing interest rate.
B) Allocates bond interest expense over the bond's life using a constant interest rate.
C) Allocates a decreasing amount of interest over the life of a discounted bond.
D) Allocates bond interest expense using the current market rate for each interest period.
E) Is not allowed by the IASB.
Effective Interest Amortization
A method of adjusting the carrying amount of a bond for the amount of interest expense recognized over the bond's life.
- Assess the impact of various approaches to bond amortization on interest expenses.
Verified Answer
BH
Brent HymanJul 03, 2024
Final Answer :
B
Explanation :
The effective interest amortization method allocates bond interest expense over the bond's life using a constant interest rate. This rate is calculated as the market interest rate at the time of issuing the bond adjusted for any transaction costs or premiums/discounts. This method is in accordance with International Financial Reporting Standards (IFRS) and International Accounting Standards Board (IASB) requirements.
Learning Objectives
- Assess the impact of various approaches to bond amortization on interest expenses.
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