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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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