On 1 April year 1, a deep discount bond was issued by DDB AG It had a face value of 2 5 million covering a five year term The lenders were granted a discount of 5 The coupon rate was 10 on the principal sum of 2 5 million, payable annually in arrears The principal sum was repayable in cash on 31 Ma...

i Issue of deep discount bond Charges to profit or loss and carrying value in the statem ...

On 1 April year 1, a deep discount bond was issued by DDB AG. It had a

Question:

On 1 April year 1, a deep discount bond was issued by DDB AG. It had a of £2.5 million covering a five-year term. The lenders were granted a discount of 5%. The rate was 10% on the principal sum of £2.5 million, payable annually in arrears. The principal sum was repayable in cash on 31 March year 5. Issuing costs amounted to £150,000.

Required:
Compute the finance charge per annum and the carrying value of the loan to be reported in each year’s profit or loss and statement of financial position respectively.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...