Interest rate method or the actual V (Compound - interest or Effective - interest Method) Premiums or discounts are amortized as a way to reduce or increase the amount of bond interest expense account. Interest paid to the account at a rate equal to the interest on the bonds issued. Debit method is to note the real interest rate in the market before. Then use this rate to calculate the amount of interest to be amortized. By the real interest rate multiplied by the carrying amount of the bonds at the beginning of the period, the difference between interest paid in cash with interest calculated is the actual amount that will be amortized bond premium or discount.
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