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a.Straight line method – provides for a equal amount of premium or discount amortization each
accounting period.
b.Bond outstanding method – applicable to serial bonds and provides for a decreasing amount
of amortization.
c.Effective interest method- method provides for an increasing amount of amortization.

In accordance with PFRS 9, bond investments shall be classified as financial assets

measured at amortized cost using the effective interest method.
This means that any discount or premium must be amortized using the effective
interest method.
The straight line method and bond outstanding method are acceptable only when
the computation will result in periodic interest income that is not materially different
from the amount that will be computed using the effective interest method.
Manda Company acquired P6,000,000 of Landoil 12%
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bonds on May 1, 2015 at 94 plus accrued interest to

MANDA
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be held as financial asset at amortized cost. The

bonds pay interest semi annually on Feb 1 and Aug 1,
COMPANi
and mature on Feb 1, 2019. the fiscal period for
Manda Company is the calendar period. Amortization
is done following the straight line method.

On May 1, 2017, Manda Company sold all the bonds

PiOBLEM
at 105 plus accrued interest. 25 - 9

Required:
Prepare journal entries for 2015, 2016 and 2017
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100$
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100$
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100$
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On January 1, 2015, Flexible Company acquired for

FLEiIBLE
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P1,150,000 the entire P1,000,000 12% bond issue of

another entity to be held as financial asset at COMPANi
amortized cost.

Bonds of P200,000 mature at annual interval beginning

December 31, 2015. interest is payable semi annually
on June 30 and December 31.
PiOBLEM
25 - 10
Required :
a. Prepare a schedule of amortization following the
bonds outstanding method.
b. Prepare journal entries of the current year.
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100$