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Lecture Intermediate accounting (Volume 2, 11th Canadian edition) – Chapter 14: Long-term financial liabilities

After studying this chapter, you should be able to: Understand the nature of long-term debt financing arrangements; understand how long-term debt is measured and accounted for; understand when long-term debt is recognized and derecognized, including how to account for troubled debt restructurings;. | 1 CHAPTER 14: LONG-TERM FINANCIAL LIABILITIES 2 CHAPTER 14: Long-Term Financial Liabilities After studying this chapter, you should be able to: Understand the nature of long-term debt financing arrangements. Understand how long-term debt is measured and accounted for. Understand when long-term debt is recognized and derecognized, including how to account for troubled debt restructurings. Explain how long-term debt is presented on the statement of financial position. Identify disclosure requirements. Calculate and interpret key ratios related to solvency and liquidity. Identify major differences in accounting standards between IFRS and ASPE, and what changes are expected in the near future. 3 3 Issuing Long-Term Debt Obligations not payable within one year, or one business operating cycle—whichever is longer Examples include: Bonds payable Long-term notes payable Mortgages Pension liabilities Lease liabilities Often with restrictive covenants (terms) attached 4 4 LO1 Understand the nature of long-term debt financing arrangements. Bonds Most common type of long-term debt A bond indenture is a promise (by the lender to the borrower) to pay: a sum of money at the designated date, and periodic interest (usually paid semi-annually) at a stipulated rate on the face value. A bond issue may be sold: either through an investment banker, or by private placement. 5 5 LO1 Understand the nature of long-term debt financing arrangements. Notes Payable Similar in nature to bonds Require repayment of principal at a future date Require periodic interest payments The difference is that notes do not normally trade on public markets Accounting for bonds and notes is the same in many respects Like a bond, a note is recorded at the PV of future interest and principal, and any premium/discount is amortized over the life of the note 6 6 LO1 Understand the nature of long-term debt financing arrangements. Types of Bonds/Notes Bearer (coupon) bonds: are freely transferable by current owner . | 1 CHAPTER 14: LONG-TERM FINANCIAL LIABILITIES 2 CHAPTER 14: Long-Term Financial Liabilities After studying this chapter, you should be able to: Understand the nature of long-term debt financing arrangements. Understand how long-term debt is measured and accounted for. Understand when long-term debt is recognized and derecognized, including how to account for troubled debt restructurings. Explain how long-term debt is presented on the statement of financial position. Identify disclosure requirements. Calculate and interpret key ratios related to solvency and liquidity. Identify major differences in accounting standards between IFRS and ASPE, and what changes are expected in the near future. 3 3 Issuing Long-Term Debt Obligations not payable within one year, or one business operating cycle—whichever is longer Examples include: Bonds payable Long-term notes payable Mortgages Pension liabilities Lease liabilities Often with restrictive covenants (terms) attached 4 4 LO1 Understand the .