01 — Concept
What is a Bond Sale — and Why Does Accounting Get Complex?
A bond is a debt instrument — the issuing company borrows money from investors and promises to repay the principal (face value) at maturity while paying periodic interest (coupon). The price at which a bond is sold depends on the relationship between the coupon rate and the market (effective) interest rate: if coupon > market rate, bonds sell at a premium; if coupon < market rate, bonds sell at a discount; if equal, bonds sell at par. In e-commerce contexts, bond proceeds may be received via online payment systems — the accounting principles remain identical, but the bank/gateway account used changes.
3
Sale scenarios — At Par, At Premium, At Discount
2
Amortisation methods — Straight-Line & Effective Interest
5
Journal entry types — Sale, Interest, Amortisation, Accrual, Redemption
Ind AS 109
Governing standard — Financial Instruments (bond issuer's books)
📌 Core Accounting Principle for Bond Sales: The cash received for a bond is recorded as a liability (Bonds Payable) at face value. Any premium or discount is recorded separately and amortised over the bond's life to arrive at the effective interest expense each period. At maturity, Bonds Payable is extinguished by repaying face value to bondholders — premium/discount must be fully amortised by that date.
✅ Face Value vs Proceeds — Always Distinguish: (A) Face Value (Par Value) — the amount printed on the bond certificate; repaid at maturity. (B) Issue Proceeds — the actual cash received on the sale date (may be higher or lower than face value). (C) Premium / Discount — the difference between proceeds and face value; amortised as an adjustment to interest expense over the bond's life. Never record bonds at proceeds directly — always record at face value with a separate premium/discount account.
02 — Bond Sale Money Flow
The Bond Sale Money Flow — 5 Stages
Understanding how money flows from bond issuance to maturity is the foundation of accurate bond accounting. From the moment investors subscribe to bonds, several accounting events are triggered that span the entire bond tenure.
→
STAGE 01
Bond Issued / Sold
Company sells bonds to investors at par, premium, or discount. Proceeds received via bank or payment gateway. Bonds Payable (face value) + Premium / Discount recorded. Liability is created HERE.
→
STAGE 02
Periodic Interest Accrual
At each period end, interest expense is accrued: Dr Bond Interest Expense | Cr Interest Payable. If using the effective interest method, the amortisation of premium/discount is part of this entry, adjusting the carrying amount.
→
STAGE 03
Interest Payment
On the coupon payment date, accrued interest is paid to bondholders: Dr Interest Payable | Cr Bank. Cash paid = Face Value × Coupon Rate × Time fraction. Does NOT affect bond principal.
→
STAGE 04
Premium / Discount Amortisation
Each period, the premium or discount is amortised. Premium amortisation reduces interest expense below the coupon payment. Discount amortisation increases interest expense above the coupon payment. By maturity, carrying amount = face value.
STAGE 05
Bond Redemption at Maturity
At maturity, company repays face value: Dr Bonds Payable | Cr Bank. All premium/discount must be fully amortised by maturity date. If redeemed early, any unamortised balance is written off as gain or loss on redemption.
🔑 E-Commerce Context: When a company raises bond capital via an online platform (digital bond issuance, peer-to-peer lending portals, or securities-linked e-commerce platforms), proceeds may flow through a payment gateway before reaching the bank. In such cases, record: Dr Payment Gateway Receivable A/c | Cr Bonds Payable A/c (and Premium/Discount). On settlement: Dr Bank A/c + Dr Gateway Fee Expense | Cr Payment Gateway Receivable A/c. The bond accounting entries remain identical — only the bank/gateway account changes.
03 — Case Study: Bonds Issued at Par
Case Study 1: Bonds Issued at Par (Face Value)
The simplest bond scenario — when the coupon rate equals the market interest rate, investors pay exactly the face value of the bond. No premium or discount arises, and interest expense equals the cash coupon payment each period.
FACTS OF THE CASE
Zerolev Ltd — ₹10,00,000 Bonds at Par, 10% Coupon, 5-Year Term
Zerolev Ltd issues 1,000 bonds of ₹1,000 face value each = ₹10,00,000 face value. Coupon rate: 10% p.a., payable annually. Market rate at issue: 10% p.a. (same as coupon). Issue price = ₹10,00,000 (at par). Bond proceeds received via online payment portal; gateway settles ₹9,97,000 after deducting ₹3,000 processing fee. Annual interest payment: ₹1,00,000.
Entry 1A: Bond Issued — Proceeds Received via Payment GatewayBond Issuance at Par — Gateway Receipt
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Payment Gateway Receivable A/c | Dr | 10,00,000 | — |
| To Bonds Payable A/c (Face Value) | Cr | — | 10,00,000 |
| Total | 10,00,000 | 10,00,000 | |
Being issue of 1,000 bonds of ₹1,000 each at par. Bonds Payable A/c is a long-term liability representing the face value to be repaid at maturity. Payment Gateway Receivable A/c is a current asset (money in transit). At par — no premium or discount account needed.
Entry 1B: Gateway Settlement — Net Amount Credited to BankBond Proceeds Settlement — Online Platform
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Bank A/c (Net after gateway fee) | Dr | 9,97,000 | — |
| Bond Issuance Expense A/c (Gateway Fee) | Dr | 3,000 | — |
| To Payment Gateway Receivable A/c | Cr | — | 10,00,000 |
| Total | 10,00,000 | 10,00,000 | |
Being settlement of bond proceeds by online payment platform. Net ₹9,97,000 credited to bank; gateway fee ₹3,000 is a bond issuance cost (may be expensed immediately or amortised as a deferred cost over the bond's life under Ind AS 109). Gateway Receivable cleared. Bonds Payable remains at ₹10,00,000 (full face value due at maturity).
Entry 1C: Annual Interest Accrual and Payment (Year 1)Bond Interest — At Par (No Amortisation)
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Bond Interest Expense A/c (10% × ₹10,00,000) | Dr | 1,00,000 | — |
| To Interest Payable A/c | Cr | — | 1,00,000 |
| Accrual Total | 1,00,000 | 1,00,000 | |
Being annual interest accrual on bonds at par. Interest Expense = Face Value × Coupon Rate = ₹10,00,000 × 10% = ₹1,00,000. On payment date: Dr Interest Payable A/c ₹1,00,000 | Cr Bank A/c ₹1,00,000. At par, cash paid = interest expense = no amortisation needed. This same entry repeats for all 5 years.
✅ Key Insight — Bonds at Par: When bonds are issued at par, the accounting is straightforward. Interest Expense = Cash Coupon Paid every period. No premium or discount account is created. Bonds Payable remains at ₹10,00,000 throughout the 5-year term. At maturity: Dr Bonds Payable ₹10,00,000 | Cr Bank ₹10,00,000 — full face value repaid and liability extinguished.
Case Study 2: Bonds Issued at a Premium
When the coupon rate exceeds the market interest rate, investors are willing to pay more than face value — the bond is issued at a premium. The premium is recorded as a liability (added to Bonds Payable carrying amount) and amortised over the bond's life, reducing the effective interest expense below the cash coupon payment each period.
FACTS OF THE CASE
Zerolev Ltd — ₹10,00,000 Bonds at Premium, 12% Coupon, Market Rate 10%, 5-Year Term
Zerolev Ltd issues 1,000 bonds of ₹1,000 face value = ₹10,00,000 face value. Coupon rate: 12% p.a. Market rate: 10% p.a. (coupon > market → premium). Issue price: ₹10,75,820 (calculated using PV of cash flows at 10%). Premium on Bonds Payable = ₹10,75,820 − ₹10,00,000 = ₹75,820. Annual coupon: ₹1,20,000. Straight-line amortisation of premium: ₹75,820 ÷ 5 = ₹15,164 per year.
Entry 2A: Bond Issued at Premium — Record Proceeds and PremiumBond Issuance at Premium
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Bank A/c / Payment Gateway Receivable A/c | Dr | 10,75,820 | — |
| To Bonds Payable A/c (Face Value) | Cr | — | 10,00,000 |
| To Premium on Bonds Payable A/c | Cr | — | 75,820 |
| Total | 10,75,820 | 10,75,820 | |
Being issue of bonds at a premium. Bonds Payable = face value ₹10,00,000. Premium on Bonds Payable ₹75,820 = a credit-balance account (added to Bonds Payable on the Balance Sheet). Carrying Amount of bonds at issue = ₹10,00,000 + ₹75,820 = ₹10,75,820. Premium is amortised over 5 years, reducing it to ₹0 by maturity.
Entry 2B: Annual Interest Expense with Premium Amortisation (Straight-Line)Bond Interest + Premium Amortisation (SLM)
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Bond Interest Expense A/c (Effective interest: ₹1,20,000 − ₹15,164) | Dr | 1,04,836 | — |
| Premium on Bonds Payable A/c (SLM amortisation) | Dr | 15,164 | — |
| To Interest Payable A/c (Cash coupon: 12% × ₹10,00,000) | Cr | — | 1,20,000 |
| Total | 1,20,000 | 1,20,000 | |
Being annual interest entry for bonds at premium (straight-line method). Cash coupon = ₹1,20,000 (12% × ₹10,00,000) — credited to Interest Payable. Premium amortised = ₹15,164 — debited to Premium A/c (reducing it each year). Effective Interest Expense = ₹1,04,836 (lower than coupon because the company received extra cash upfront). On payment: Dr Interest Payable ₹1,20,000 | Cr Bank ₹1,20,000.
📌 Premium Amortisation Logic: When bonds are issued at a premium, investors paid more than face value. This extra amount (₹75,820) is effectively returned to investors through the higher coupon payments. Premium amortisation recognises that the true (effective) interest cost is lower than the cash coupon paid. Over 5 years: Premium A/c goes from ₹75,820 → ₹0. Carrying amount of bonds: ₹10,75,820 → ₹10,00,000 (face value at maturity).
05 — Case Study: Bonds Issued at a Discount
Case Study 3: Bonds Issued at a Discount
When the coupon rate is below the market interest rate, investors demand a lower price — the bond is issued at a discount. The discount is recorded as a debit-balance contra-liability (reducing the carrying amount of Bonds Payable) and amortised over the bond's life, increasing the effective interest expense above the cash coupon payment each period.
FACTS OF THE CASE
Zerolev Ltd — ₹10,00,000 Bonds at Discount, 8% Coupon, Market Rate 10%, 5-Year Term
Zerolev Ltd issues bonds with ₹10,00,000 face value. Coupon rate: 8% p.a. Market rate: 10% p.a. (coupon < market → discount). Issue price: ₹9,24,184 (PV of cash flows at 10%). Discount on Bonds Payable = ₹10,00,000 − ₹9,24,184 = ₹75,816. Annual coupon: ₹80,000. Straight-line amortisation of discount: ₹75,816 ÷ 5 = ₹15,163 per year.
Entry 3A: Bond Issued at Discount — Record Proceeds and DiscountBond Issuance at Discount
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Bank A/c / Payment Gateway Receivable A/c | Dr | 9,24,184 | — |
| Discount on Bonds Payable A/c (Contra-liability) | Dr | 75,816 | — |
| To Bonds Payable A/c (Face Value) | Cr | — | 10,00,000 |
| Total | 10,00,000 | 10,00,000 | |
Being issue of bonds at a discount. Bonds Payable = face value ₹10,00,000. Discount on Bonds Payable ₹75,816 = a debit-balance contra-liability (deducted from Bonds Payable on the Balance Sheet). Net carrying amount at issue = ₹10,00,000 − ₹75,816 = ₹9,24,184. Discount is amortised over 5 years until carrying amount reaches ₹10,00,000 at maturity.
Entry 3B: Annual Interest Expense with Discount Amortisation (Straight-Line)Bond Interest + Discount Amortisation (SLM)
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Bond Interest Expense A/c (₹80,000 + ₹15,163) | Dr | 95,163 | — |
| To Interest Payable A/c (Cash coupon: 8% × ₹10,00,000) | Cr | — | 80,000 |
| To Discount on Bonds Payable A/c (Amortisation) | Cr | — | 15,163 |
| Total | 95,163 | 95,163 | |
Being annual interest entry for bonds at discount (straight-line method). Cash coupon = ₹80,000 (8% × ₹10,00,000). Discount amortised ₹15,163 — credited to Discount A/c (reducing the debit balance). Effective Interest Expense = ₹95,163 (higher than coupon because the company received less cash than it will repay). On payment: Dr Interest Payable ₹80,000 | Cr Bank ₹80,000.
⚠️ Discount Amortisation Logic: When bonds are issued at a discount, investors paid less than face value but will receive the full face value at maturity. This extra ₹75,816 to be repaid is an additional cost of borrowing — spread over the bond's life via discount amortisation. The true interest cost is higher than the cash coupon. Over 5 years: Discount A/c goes from ₹75,816 → ₹0. Carrying amount: ₹9,24,184 → ₹10,00,000.
06 — Bond Interest Entries (All Scenarios)
Bond Interest — Accrual, Payment & Accrued Interest on Sale
Bond interest accounting involves three distinct situations: (a) periodic interest accrual and payment by the issuer, (b) accrued interest collected when bonds are sold between interest dates, and (c) the year-end accrual for partial periods. Each requires a separate journal entry.
01
ACCRUAL
Interest Accrual at Period End
Dr Bond Interest Expense A/c | Cr Interest Payable A/c. Amount = Face Value × Coupon Rate × (Days/365). Required at every balance sheet date even if coupon date hasn't arrived yet. Adjust for premium/discount amortisation.
02
PAYMENT
Coupon Payment to Bondholders
Dr Interest Payable A/c | Cr Bank A/c. Clears the accrued interest liability. Cash paid = Face Value × Coupon Rate × Period. No effect on Bonds Payable principal. In digital bond platforms, payment may go through escrow or payment aggregator.
03
BETWEEN DATES
Bonds Sold with Accrued Interest
When bonds are sold on the secondary market between interest dates, the buyer pays accrued interest to the seller. Issuer records: Dr Bank A/c (face + accrued interest) | Cr Bonds Payable (face) | Cr Accrued Interest Payable (accrued). On next coupon date, full coupon paid to new bondholder.
04
EFFECTIVE RATE
Effective Interest Method (Ind AS 109)
Interest Expense = Carrying Amount × Effective Rate. Amortisation = Interest Expense − Cash Coupon (for discount) or Cash Coupon − Interest Expense (for premium). Preferred under Ind AS 109 over straight-line for material bonds. Carrying amount adjusted each period.
Entry 4A: Bonds Sold Between Interest Dates — Accrued Interest CollectedAccrued Interest on Sale — Issuer's Books
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Bank A/c (₹10,00,000 face + ₹20,000 accrued interest for 2 months) | Dr | 10,20,000 | — |
| To Bonds Payable A/c (Face Value) | Cr | — | 10,00,000 |
| To Accrued Interest Payable A/c (2 months interest collected) | Cr | — | 20,000 |
| Total | 10,20,000 | 10,20,000 | |
Being issue of bonds 2 months after last coupon date. Buyer pays accrued interest ₹20,000 (₹10,00,000 × 12% × 2/12) in addition to face value. This ₹20,000 is NOT income for the issuer — it is a liability (Accrued Interest Payable). On the next coupon date, the issuer pays full 6-month coupon (e.g., ₹60,000) to the new holder: Dr Accrued Interest Payable ₹20,000 + Dr Bond Interest Expense ₹40,000 | Cr Bank ₹60,000.
07 — Bond Redemption at Maturity
Case Study 4: Bond Redemption at Maturity
At maturity, the company repays the face value of the bonds to investors and extinguishes the Bonds Payable liability. By the maturity date, all premium or discount must have been fully amortised — the carrying amount must equal the face value on the redemption date.
Entry 5A: Final Interest Payment and Redemption at MaturityBond Redemption — Face Value Repayment
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Bond Interest Expense A/c (Final coupon — year 5) | Dr | 1,00,000 | — |
| To Interest Payable A/c | Cr | — | 1,00,000 |
| Interest Accrual Total | 1,00,000 | 1,00,000 | |
Step 1: Accrue final period's interest as usual. Then proceed to the redemption entry below.
Entry 5B: Redemption — Pay Face Value + Final Interest to BondholdersBonds Payable Extinguished at Maturity
| Account | Dr/Cr | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Bonds Payable A/c (Face Value) | Dr | 10,00,000 | — |
| Interest Payable A/c (Final coupon) | Dr | 1,00,000 | — |
| To Bank A/c | Cr | — | 11,00,000 |
| Total | 11,00,000 | 11,00,000 | |
Being repayment of ₹10,00,000 face value + ₹1,00,000 final coupon at maturity. Bonds Payable A/c is fully extinguished (₹0 balance). The premium/discount account must already be ₹0 after 5 years of amortisation. If premium/discount has any balance at maturity due to rounding differences, write it off to interest expense or other income.
🔑 Early Redemption / Callable Bonds: If bonds are redeemed before maturity at a premium (call price > carrying amount): Dr Bonds Payable (face) + Dr Unamortised Premium (if any) | Cr Bank (call price) | Dr Loss on Early Redemption (balancing figure). If redeemed below carrying amount: a Gain on Early Redemption arises. The unamortised discount, if any, must be written off as a loss at the time of early redemption.
Summary — All Bond Journal Entries
Quick Reference — All Bond Sale Journal Entries
| Transaction | Debit | Credit | Key Note |
|---|---|---|---|
| Bonds issued at par | Bank / Gateway Receivable A/c | Bonds Payable A/c | No premium or discount — straightforward liability |
| Bonds issued at premium | Bank / Gateway Receivable A/c | Bonds Payable A/c + Premium on Bonds Payable A/c | Premium is a credit-balance account (added to carrying amount) |
| Bonds issued at discount | Bank A/c + Discount on Bonds Payable A/c | Bonds Payable A/c | Discount is a debit-balance contra-liability (deducted from carrying amount) |
| Gateway settlement of bond proceeds | Bank A/c + Gateway/Issuance Fee Expense | Payment Gateway Receivable A/c | Gross proceeds recorded; gateway fee is bond issuance cost |
| Annual interest accrual (at par) | Bond Interest Expense A/c | Interest Payable A/c | Interest Expense = Coupon Payment (no amortisation) |
| Annual interest + premium amortisation (SLM) | Bond Interest Expense A/c + Premium on Bonds Payable A/c | Interest Payable A/c | Effective interest < coupon; premium reduced each year |
| Annual interest + discount amortisation (SLM) | Bond Interest Expense A/c | Interest Payable A/c + Discount on Bonds Payable A/c | Effective interest > coupon; discount reduced each year |
| Coupon payment to bondholders | Interest Payable A/c | Bank A/c | Clears accrued interest liability; no effect on principal |
| Bonds sold between interest dates (accrued interest) | Bank A/c (face + accrued interest) | Bonds Payable A/c + Accrued Interest Payable A/c | Accrued interest collected from buyer is a liability — not income |
| Bond redemption at maturity | Bonds Payable A/c + Interest Payable A/c | Bank A/c | Face value repaid; premium/discount must be fully amortised |
| Early redemption — gain | Bonds Payable A/c + Premium on Bonds Payable A/c | Bank A/c (call price) + Gain on Bond Redemption A/c | Carrying amount > redemption price → gain |
| Early redemption — loss | Bonds Payable A/c + Loss on Bond Redemption A/c | Bank A/c (call price) + Discount on Bonds Payable A/c | Redemption price > carrying amount → loss |
08 — Bond Issuance Cost Treatment
Bond Issuance Costs — Accounting Treatment
Issuing bonds involves various upfront costs — underwriting fees, legal fees, online platform charges, payment gateway fees, listing fees. These must be correctly classified under Ind AS 109 (effective interest rate adjustment) or older Indian GAAP (deferred charge amortisation).
| Cost Item | Accounting Treatment (Ind AS 109) | Journal Entry | Notes |
|---|---|---|---|
| Online Platform / Payment Gateway Fee | Deducted from bond proceeds; increases effective interest rate (reduces net carrying amount) | Dr Bond Issuance Expense A/c (or Dr Discount on Bonds) | Cr Bank | Under Ind AS 109, issuance costs adjust the EIR. Under Indian GAAP: may defer and amortise |
| Underwriting / Arrangement Fee | Transaction cost — deducted from proceeds, included in EIR calculation | Adjust initial carrying amount of liability downward; higher EIR absorbs over bond life | Part of effective interest rate — not expensed immediately under Ind AS 109 |
| Legal / Documentation Fees | General & administrative expense — expensed in the period incurred | Dr Legal Expense A/c | Cr Bank A/c | Not part of EIR; cannot be deferred under Ind AS 109 |
| Stock Exchange Listing Fees (for listed debentures) | Expensed in period or amortised as deferred charge (Indian practice) | Dr Listing Fee Expense A/c | Cr Bank A/c | Consult CA for treatment under applicable GAAP |
| Annual Trustee / Registrar Fee | Direct expense in each period the service relates to | Dr Trustee Fee Expense A/c | Cr Bank / Payable A/c | Period cost — not a bond issuance cost; expensed as incurred |
09 — Interactive Classroom
Accounts School — Bond Sale Journal Entries Interactive Classroom
Step into the virtual accounting classroom. Navigate through 6 animated lessons covering bond sale accounting — from the basic issuance at par to premium and discount entries, accrued interest, amortisation methods, and bond redemption — with live quizzes, teacher narration, and interactive notes.
📈
Accounts School
BOND SALE ACCOUNTING · DEBT INSTRUMENTS · ZEROLEV
Step into a virtual classroom! Learn bond journal entries — issuance at par, premium, discount; accrued interest; premium/discount amortisation (SLM & EIM); and bond redemption with an animated teacher, interactive blackboard, live quizzes, and voice narration.
📈
Accounts School
BOND SALE ACCOUNTING
Beginner – Intermediate
LESSON 1 / 6
0 stars
📈 Bond Sale Accounting
Par · Premium · Discount
- At Par: Dr Bank | Cr Bonds Payable
- Premium: + Cr Premium on Bonds
- Discount: + Dr Discount on Bonds
Welcome to Bond Accounting!
10:00
Today's Topic
Bond Sale Entries
⭐ Stars
0 earned
LESSON 1 OF 6
🎓
Class Dismissed!
Excellent! You completed all 6 lessons on Bond Sale Accounting. You now understand bonds at par, premium, discount, accrued interest, amortisation, and redemption entries. Go master your bond books! 📈
6
LESSONS
0
QUIZ SCORE
10 — FAQ
Frequently Asked Questions — Bond Sale Accounting
What is the journal entry for sale of bonds at par value?
When bonds are sold at par (face value = issue price): Dr Bank A/c / Payment Gateway Receivable A/c (face value) | Cr Bonds Payable A/c (face value). No premium or discount account is needed. Interest Expense each period = Cash Coupon Paid = Face Value × Coupon Rate × Time. On redemption at maturity: Dr Bonds Payable A/c | Cr Bank A/c.
What is the journal entry for bonds issued at a premium?
When coupon rate > market rate, bonds sell above face value (at a premium). Entry at issuance: Dr Bank A/c (proceeds) | Cr Bonds Payable A/c (face value) | Cr Premium on Bonds Payable A/c (premium amount). Each period: Dr Bond Interest Expense A/c (effective interest) + Dr Premium on Bonds Payable A/c (amortisation) | Cr Interest Payable A/c (cash coupon). Premium amortisation reduces interest expense below the coupon payment. Premium A/c reaches ₹0 at maturity.
What is the journal entry for bonds issued at a discount?
When coupon rate < market rate, bonds sell below face value (at a discount). Entry at issuance: Dr Bank A/c (proceeds) | Dr Discount on Bonds Payable A/c (discount) | Cr Bonds Payable A/c (face value). Each period: Dr Bond Interest Expense A/c (effective interest) | Cr Interest Payable A/c (cash coupon) | Cr Discount on Bonds Payable A/c (amortisation). Discount amortisation increases interest expense above the coupon payment. Discount A/c reaches ₹0 at maturity.
What is the difference between straight-line and effective interest amortisation of bond premium/discount?
Straight-Line Method (SLM): Divides total premium or discount equally across all periods. Simple to apply but does not reflect the economic reality of compound interest. Permitted under Indian GAAP for immaterial amounts. Effective Interest Method (EIM): Interest expense each period = Carrying Amount × Effective Interest Rate. Amortisation = Difference between effective interest and cash coupon. Mandated under Ind AS 109 for bonds measured at amortised cost. EIM produces a constant interest rate on the carrying amount — more accurate economically. Under EIM, amortisation amounts vary each period (unlike SLM where they are equal).
How do you account for accrued interest when bonds are sold between interest dates?
When bonds are sold between coupon dates, the buyer pays accrued interest to the issuer (or seller). Issuer's entry: Dr Bank A/c (face + accrued interest) | Cr Bonds Payable A/c (face) | Cr Accrued Interest Payable A/c (accrued interest collected). The accrued interest is NOT income — it is a liability. On the next coupon payment date, the issuer pays the full period's coupon to the new bondholder: Dr Accrued Interest Payable A/c (interest pre-collected) | Dr Bond Interest Expense A/c (remaining interest from sale date) | Cr Bank A/c (full coupon).
How are bond proceeds from an online platform or payment gateway recorded?
When bond proceeds are received through an online platform or digital payment gateway: Step 1 (at subscription): Dr Payment Gateway Receivable A/c (full face value / issue price) | Cr Bonds Payable A/c (face) | Cr Premium on Bonds Payable A/c (if premium). Step 2 (on settlement): Dr Bank A/c (net of platform fee) | Dr Bond Issuance Expense A/c (platform/gateway fee) | Cr Payment Gateway Receivable A/c. Under Ind AS 109, platform fees are deducted from the liability's initial carrying amount (adjusting the EIR) rather than expensed immediately — consult your CA for the appropriate treatment.
What is the journal entry for bond redemption before maturity (early redemption)?
For early bond redemption: (a) If redeemed above carrying amount (loss): Dr Bonds Payable A/c (face) + Dr Unamortised Premium A/c (if any, write off remaining premium) | Cr Bank A/c (redemption price) | Dr Loss on Bond Redemption A/c (plug/difference). (b) If redeemed below carrying amount (gain): Dr Bonds Payable A/c (face) + Dr Unamortised Premium A/c | Cr Bank A/c (redemption price) | Cr Gain on Bond Redemption A/c. Any unamortised discount must be written off as a loss (Dr Loss on Bond Redemption | Cr Discount on Bonds Payable). Record final coupon payment separately before redemption.