Free Trial

Safari Books Online is a digital library providing on-demand subscription access to thousands of learning resources.

f u r t h e r f e at u r e s o f c o m pa n y a c c o u n t s which is greater than the original loan amount. Thus the bond is effec- tively paying interest; you just don't get it until the end of the term. How do you account for a zero coupon bond, then? Is the liability the initial amount or the final amount? The liability starts as the amount of cash received for the bond, but the liability increases each year. As I said, interest is effectively paid on this type of loan, and we can work out what the effective interest rate is. We then increase the liability by this interest rate each year so that, at the end of the term, the liability has grown to the final lump sum payment. The other book-keeping entry is to reduce retained profit each year by the effective interest for the year. Equity As we saw in the last session, Wingate has only one type (or class as it