This is an extract of our Non Current Liabilities Bonds document, which we sell as part of our Accounting (Special Edition) Notes collection written by the top tier of Acca students.
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Non-Current Liabilities - Bonds http://www.youtube.com/watch?feature=player_embedded&v=BgQXz2oWwIY
Definition Non-Current Liabilities are those obligations of the entity that do not have to be paid within 12 months of a balance sheet date. Bonds are non-current liabilities, these are investments made my public in the entity for a specified period of time at a fixed interest rate. In other words Bonds are also known as debentures, these are funds borrowed from the public by the business to finance projects or expansion (merger, takeovers etc.) for a specified period which is usually more than a year. In return business gives a fixed amount (interest) every year on the investment made by investors. Bonds are commonly referred to as fixed-income securities. Bonds are used by companies, local authorities, states and U.S. and foreign governments to finance a variety of projects and operations. Why is it important?
In addition to raising capital from stock issuance, many companies issue debt securities in the form of bonds to finance their operations. Lecture Notes Bond Terminologies Following are some common terminologies used in bonds Face Value The face value is also known as Par value is the principal amount that will be paid to the bondholders when the bond matures Coupon Rate This is the rate of return (interest rate) stated on the bond, usually fixed over the bond life Coupon Payment this is simply the coupon rate multiply by the face value of the bond
= coupon rate x face value Market rate of Interest is the rate of interest required by the investors, it is also depends on the risk factor of the bond.Bond market value changes with the market rate of interest
Market Rate vs Coupon Rate When issuing bonds in the market, the coupon rate and the market rate may differ.
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