- CFA Exams
- CFA Exam: Level I 2021
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 28. Non-current (Long-term) Liabilities
- Subject 1. Accounting for Bond Issuance, Bond Amortization, Interest Expense, and Interest Payments
CFA Practice Question
The amount of bond discount amortized each semi-annual period under the effective interest method continues to increase over the life of the bond. True or False?
Correct Answer: True
The effective interest (interest expense) is higher than the interest paid on the bonds when a discount applies. The discount amortization is the difference between these two values. Since the expense calculation is based on the carrying value of the bonds (face amount - discount balance), which continually increases over the life of the bonds, the amortization of the discount also increases each period.
User Contributed Comments 3
| User | Comment |
|---|---|
| kalps | Discount amortisation = Effective interest - Actual interest (per face value) |
| farhan92 | "Pull to Par baby!" as stated by some legend in one of the earlier q's |
| kingirm | It means The cumulative total amount increases? |