Straight-line amortisation of bonds traded at a premium/discount
Can someone explain if I’m thinking of this problem correctly:
If traded at a premium, the amortisation will reduce the bond liability value. Interest Expense = Interest Payment - SL amortisation
If traded at a discount, the amortisation will increase the bond liability value. Interest Expense = Interest Payment + SL amortisation
This is in line with the general movements of the accounts if the effective interest rate method is used. But I still don’t quite understand the mechanism behind the accounting treatment.
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