The business model is to hold the financial asset in order to collect contractual cash flows

on specified dates.
Cash
CONDITIONS

The contractual cash flows are solely payments of principal and interest on the principal
amount outstanding.

A contract of debt whereby one party called the issuer borrows fund from
another party called the investor.

A debt security because the bondholder is a creditor and the issuer is a debtor.

Evidenced by a certificate and the contractual agreement between the issuer and investor is contained in another
BOND INSTRUMENT
document known as "bond indenture".

Financial assets held for trading or trading securities

Classification Financial assets at amortized cost

Financial assets irrevocably designated as at fair value through profit or loss.

PFRS 9, paragraph 5.1.1, bond investments are recognized initially at fair value plus transaction costs that
Initial Measurement are directly attributable to the acquisition.

Measurement
Trading bond investments are measured at fair value through profit or loss. When bond investment is
held for "trading", it is not necessary to amortize any premium or discount.

Subsequent Measurement
Bond investments are classified as financial assets measured at amortized cost using the effective
interest method.

Straight line method Provides for an equal or uniform amount of premium or discount amortization each accounting period.
Amortization of cost
Acceptable only when the computation will result in periodic interest income that is not materially
Financial Assets at different from the amount that would be computed using the effective interest method.
Amortized Cost

Applicable to serial bonds and provides for decreasing amount of amortization.

Bond standing method

Acceptable only when the computation will result in periodic interest income that is not materially
different from the amount that would be computed using the effective interest method.

Simply "interest method" or scientific method provides for an increasing amount of amortization.
Effective interest method

PFRS 9, bond investments shall be classified as financial assets measured at amortized cost using
the effective interest method.

If the Acquisition cost of the bonds is different from the face value, the bonds are said
PREMIUM AND DISCOUNTS to be acquired at a premium or discount.

If the Acquisition cost is more than the face value, the difference is a bond premium.

If the acquisition cost is less than the face value, the difference is a bond discount.

If the bond investments are classified as financial assets at amortized cost, the bond premium or
discount is amortized over the life of the bonds.

Those bonds that mature on a single date.

TERM BONDS

CALLABLE BONDS Those which may be called in or redeemed by the issuer prior
to the date of maturity..
The call price or redemption price is at a premium or more than the face value of the bonds.

The difference between the redemption price and the carrying amount of the bonds on the date of
redemption -is recognized in profit or loss.

CONVERTIBLE BONDS Those which give the bondholders the right to exchange their bonds for share capital of the issuing
entity at any time prior to maturity.

SERIAL BONDS Those which have a series of maturity dates or those bonds which are payable in
installments.