BUSI 2160U Lecture Notes - Lecture 5: Financial Statement, Effective Interest Rate, Accrual
Document Summary
Liability characteristics according to ifrs: present obligation, past transaction/economic events, probable sacrifice of economic resources, reasonably measurable. Examples of liabilities: bank loan, amount owed to suppliers, employees, governments, obligations to provide good or services to customers, warranty obligation, mortgages and bonds. Current liabilities: must be satisfied within one year or one operating cycle. Non - current liabilities: are satisfied in more than one year or one operating cycle. Valuation of liabilities: many liabilties are valued at their present value. Ignoring the time value of money results in liabilities being overstated: current liabilities aren"t usually discounted. Difference between present and future value is small. Debt is amount borrowed and owed by an entity: examples of debt. Characteristics of bonds: face value, coupon rate (interest rate, maturity date, proceeds from bond issue, effective rate of interest. Pricing of bonds: bond price = pv interest payments + pv principal repayment, appropriate discount rate - effective interest rate, basis for determining the discount rate.
