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      Question

      Which of these explain effective interest method for

      amortisation of premium/discount on bonds?
      A Allocates constant amount each period regardless of carrying amount Correct Answer Incorrect Answer
      B Allocates based on carrying amount and effective interest rate so interest expense equals carrying amount × effective rate Correct Answer Incorrect Answer
      C Always uses nominal coupon rate for amortisation Correct Answer Incorrect Answer
      D Only for zero-coupon bonds Correct Answer Incorrect Answer

      Solution

      The effective interest method results in a constant periodic interest rate on the carrying amount of the financial liability.

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