Zero coupon bond amortisation

[J_02]

hi all,

just wondering, when a zero coupon bond is issued, is the discount amortised through the income statement each year such that upon maturity no gain or loss is recorded (similar to the effective method for discount/premium bonds)? also - is the amortisation simply the interest rate multiplied by the carrying value?

thank you very much in advance

[S2000magician]

@J_02

[W]hen a zero coupon bond is issued, is the discount amortised through the income statement each year such that upon maturity no gain or loss is recorded (similar to the effective method for discount/premium bonds)?

Yes.

@J_02

[A]lso - is the amortisation simply the interest rate multiplied by the carrying value?

Generally, yes.

That’s the preferred approach.

You’re allowed to amortize it straight-line if the difference between straight-line amortization and effective rate amortization is not material.

[J_02]

many thanks

[S2000magician]

My pleasure.