1-Unasserted assessment of penalty with a remote possibility of being asserted,
ID: 2460153 • Letter: 1
Question
1-Unasserted assessment of penalty with a remote possibility of being asserted, and very difficult to value, in which case it is unlikely a loss will occur until 13 months out if at all should not be reported. True False
2-When bonds are issued at a discount, the journal entry used to record the issuance would contain a debit to discount on bonds payable.
True False
3-Unasserted assessment of penalty that probably will be asserted, in which case there would probably be a loss in six months should be recorded as a liability.
True False
Unasserted assessment of penalty that probably will be asserted, in which case there would probably be a loss in six months should be recorded as a liability.
True False
Unasserted assessment of penalty that probably will be asserted, in which case there would probably be a loss in six months should be recorded as a liability.
True
False
How do U.S. GAAP and International Financial Reporting Standards (IFRS) differ with respect to accounting for debt issue costs?
Explanation / Answer
1) In case of any probable loss in the next financial year, it can be listed as contingent liability and a disclosure to that effect may be given in Financial Statement. But in case, there is very negligible possiblity of loss and that also after 13 months, there is no need to report the same in current financial statement.
2)
Journal entry for bonds issued at discount is as follows :-
3)
As per the Accounting Standard " Revenue recognition" , a provision is required to maintain for all the probable loss occurred within the next financial year and disclosure to such effect will be required to be given alongwith the Financial Statements.
So, in such the asserted probable penelty will be recorded as Liability.
US GAAP v/s IFRS (Debt issue cost)
Under U.S. GAAP, ASC 835-30-45-3 indicates that issuers of debt defer and amortize debt issue costs unless the fair value option under ASC 825-10 is applied to the debt, in which case, in accordance with ASC 825-10-25-3, the debt issue costs are expensed immediately. Deferred debt issue costs are capitalized as an asset in accordance with ASC 835-30-45-3 or treated as a reduction of the related liability as indicated in paragraph 237 of FASB Concepts Statement No. 6, Elements of Financial Statements.
Under IFRSs, paragraph 43 of IAS 39 (paragraph 5.1.1 of IFRS 9 for entities that have adopted IFRS 9) indicates that issuers of debt initially recognize a liability at its fair value2 less transaction costs that are directly attributable to the issuance of the debt unless the debt will subsequently be accounted for at fair value, in which case debt issue costs are expensed immediately. Thus, under IFRSs, deferred debt issue costs are presented as a reduction of the related liability. Unlike U.S. GAAP, IFRSs prohibit entities from capitalizing debt issue costs as an asset.
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