The value of bonds on the balance sheet

Simply put a bond is a form of financing and as such is an agreement to repay borrowed money with deemed interest (called ‘coupon’) intervals. So in essence bond could be considered also as a loan. However, note here that when loan payables are fairly easy to be recognized, bonds have a few things that need to be kept in mind. What is the price of one bond and what does it consist of? With loan payable it is far easier, so we will try to give you a few pointers just for the basics of bonds.

Without going into too much detail with the general and more advanced knowledge about bonds, essentially, when recognizing and measuring them on the balance sheet, there are two things that you need to keep in mind. First off we have the value meaning the bond’s market price. Bonds have two prices usually – ask and bid. ‘Ask’ is the price sellers want for the bond and ‘bid’ the price it is bought with. Obviously those two don’t equal so only one of them can be used on your balance sheet when you buy bonds. Now when we think about the rules when it comes to recognizing assets on the balance sheet, they are always shown at their lowest value really. So when recognizing and measuring bonds, they ought to be shown in their ‘bid’ price because this is what you’ll get for them.

The other thing that needs to be kept in mind is the coupon. Depending on the type of the bond agreement, the coupons have a fixed interval meaning that there will be accrued interest in addition to the market value of the bond. Those interests are also part of the value on the balance sheet at a balance sheet date.

So, the ‘bid’ and accrued coupon – keep them in mind and recognizing bonds just got easier.