中级财务会计I(双语)课程ch06课件

中级财务会计I(双语)课程ch06课件CHAPTER6ACCOUNTINGANDTHETIMEVALUEOFMONEYIntermediateAccountingIFRSEditionKieso,Weygandt,andWarfield

CHAPTER6ACCOUNTINGANIdentifyaccountingtopicswherethetimevalueofmoneyisrelevant.Distinguishbetweensimpleandcompoundinterest.Useappropriatecompoundinteresttables.Identifyvariablesfundamentaltosolvinginterestproblems.Solvefutureandpresentvalueof1problems.Solvefuturevalueofordinaryandannuitydueproblems.Solvepresentvalueofordinaryandannuitydueproblems.Solvepresentvalueproblemsrelatedtodeferredannuitiesandbonds.Applyexpectedcashflowstopresentvaluemeasurement.LearningObjectivesIdentifyaccountingtopicswheFuturevalueofasinglesumPresentvalueofasinglesumSolvingforotherunknownsBasicTimeValueConceptsSingle-SumProblemsAnnuitiesMoreComplexSituationsPresentValueMeasurementApplicationsThenatureofinterestSimpleinterestCompoundinterestFundamentalvariablesFuturevalueofordinaryannuityFuturevalueofannuitydueExamplesofFVofannuityPresentvalueofordinaryannuityPresentvalueofannuitydueExamplesofPVofannuityDeferredannuitiesValuationoflong-termbondsEffective-interestmethodofbonddiscount/premiumamortizationChoosinganappropriateinterestrateExampleofexpectedcashflowAccountingandtheTimeValueofMoneyFuturevalueofasinglesumBaArelationshipbetweentimeandmoney.Adollarreceivedtodayisworthmorethanadollarpromisedatsometimeinthefuture.BasicTimeValueConceptsTimeValueofMoneyLO1Identifyaccountingtopicswherethetimevalueofmoneyisrelevant.ArelationshipbetweentimeanNotesLeasesPensionsandOtherPostretirementBenefitsLong-TermAssetsApplicationstoAccountingTopics:BasicTimeValueConceptsShared-BasedCompensationBusinessCombinationsDisclosuresEnvironmentalLiabilitiesLO1Identifyaccountingtopicswherethetimevalueofmoneyisrelevant.NotesApplicationstoAccountiPaymentfortheuseofmoney.Excesscashreceivedorrepaidovertheamountborrowed(principal).TheNatureofInterestBasicTimeValueConceptsLO1Identifyaccountingtopicswherethetimevalueofmoneyisrelevant.Paymentfortheuseofmoney.Interestcomputedontheprincipalonly.LO2Distinguishbetweensimpleandcompoundinterest.BasicTimeValueConceptsSimpleInterestIllustration:KCborrows$20,000for3yearsatarateof7%peryear.Computethetotalinteresttobepaidforthe3years.Manyregulatoryframeworksrequiredisclosureofinterestratesonanannualbasis.Interest=pxixn

=$20,000x.07x3=$4,200TotalInterestInterestcomputedontheprincInterestcomputedontheprincipalonly.LO2Distinguishbetweensimpleandcompoundinterest.BasicTimeValueConceptsSimpleInterestInterest=pxixn

=$20,000x.07x1=$1,400AnnualInterestIllustration:KCborrows$20,000for3yearsatarateof7%peryear.Computethetotalinteresttobepaidforthe1year.InterestcomputedontheprincInterestcomputedontheprincipalonly.LO2Distinguishbetweensimpleandcompoundinterest.BasicTimeValueConceptsSimpleInterestIllustration:OnMarch31,2011,KCborrows$20,000for3yearsatarateof7%peryear.ComputethetotalinteresttobepaidfortheyearendedDec.31,2011.Interest=pxixn

=$20,000x.07x9/12=$1,050PartialYearInterestcomputedontheprincLO2Distinguishbetweensimpleandcompoundinterest.BasicTimeValueConceptsCompoundInterestComputesinterestonprincipalandinterestearnedthathasnotbeenpaidorwithdrawn.Mostbusinesssituationsusecompoundinterest.LO2DistinguishbetweensimpIllustration:TomalczykCompanydeposits$10,000intheLastNationalBank,whereitwillearnsimpleinterestof9%peryear.Itdepositsanother$10,000intheFirstStateBank,whereitwillearncompoundinterestof9%peryearcompoundedannually.Inbothcases,Tomalczykwillnotwithdrawanyinterestuntil3yearsfromthedateofdeposit.Year1$10,000.00x9%$900.00$10,900.00Year2$10,900.00x9%$981.00$11,881.00Year3$11,881.00x9%$1,069.29$12,950.29Illustration6-1Simplevs.CompoundInterestLO2Distinguishbetweensimpleandcompoundinterest.BasicTimeValueConceptsIllustration:TomalczykCompaLO3Useappropriatecompoundinteresttables.Table1-FutureValueof1Table2-PresentValueof1Table3-FutureValueofanOrdinaryAnnuityof1Table4-PresentValueofanOrdinaryAnnuityof1Table5-PresentValueofanAnnuityDueof1CompoundInterestTablesNumberofPeriods=numberofyearsxthenumberofcompoundingperiodsperyear.CompoundingPeriodInterestRate=annualratedividedbythenumberofcompoundingperiodsperyear.BasicTimeValueConceptsLO3UseappropriatecompoundLO3Useappropriatecompoundinteresttables.Howmuchprincipalplusinterestadollaraccumulatestoattheendofeachoffiveperiods,atthreedifferentratesofcompoundinterest.BasicTimeValueConceptsIllustration6-2ExcerptfromTable6-1CompoundInterestLO3UseappropriatecompoundLO3Useappropriatecompoundinteresttables.BasicTimeValueConceptsFormulatodeterminethefuturevaluefactor(FVF)for1:

Where:

=futurevaluefactorfornperiodsatiinterest n =numberofperiods i =rateofinterestforasingleperiodFVFn,iCompoundInterestLO3UseappropriatecompoundLO3Useappropriatecompoundinteresttables.BasicTimeValueConceptsDeterminethenumberofperiodsbymultiplyingthenumberofyearsinvolvedbythenumberofcompoundingperiodsperyear.Illustration6-4FrequencyofCompoundingCompoundInterestLO3UseappropriatecompoundLO3Useappropriatecompoundinteresttables.9%annualinterestcompoundeddailyprovidesa9.42%yield.EffectiveYieldfora$10,000investment.BasicTimeValueConceptsIllustration6-5ComparisonofDifferentCompoundingPeriodsCompoundInterestLO3UseappropriatecompoundLO4Identifyvariablesfundamentaltosolvinginterestproblems.RateofInterestNumberofTimePeriodsFutureValuePresentValueFundamentalVariablesIllustration6-6BasicTimeValueConceptsLO4IdentifyvariablesfundaLO5Solvefutureandpresentvalueof1problems.Single-SumProblemsUnknownFutureValueTwoCategoriesUnknownPresentValueIllustration6-6LO5SolvefutureandpresentValueatafuturedateofagivenamountinvested,assumingcompoundinterest.LO5Solvefutureandpresentvalueof1problems.Single-SumProblemsFV

= futurevaluePV = presentvalue(principalorsinglesum)

= futurevaluefactorfornperiodsatiinterestFVFn,iWhere:FutureValueofaSingleSumValueatafuturedateofagiLO5Solvefutureandpresentvalueof1problems.FutureValueofaSingleSumIllustration:BrueggerCo.wantstodeterminethefuturevalueof$50,000investedfor5yearscompoundedannuallyataninterestrateof11%.=$84,253Illustration6-7LO5SolvefutureandpresentLO5Solvefutureandpresentvalueof1problems.FutureValueofaSingleSumWhattabledoweuse?AlternateCalculationIllustration:BrueggerCo.wantstodeterminethefuturevalueof$50,000investedfor5yearscompoundedannuallyataninterestrateof11%.Illustration6-7LO5SolvefutureandpresentWhatfactordoweuse?$50,000PresentValueFactorFutureValuex1.68506=$84,253FutureValueofaSingleSumAlternateCalculationi=11%n=5LO5Solvefutureandpresentvalueof1problems.Whatfactordoweuse?$50,000PBE6-1:BobAndersoninvested$15,000todayinafundthatearns8%compoundedannually.Towhatamountwilltheinvestmentgrowin3years?0123456PresentValue$15,000Whattabledoweuse?FutureValue?LO5Solvefutureandpresentvalueof1problems.FutureValueofaSingleSumBE6-1:BobAndersoninvestedLO5Solvefutureandpresentvalueof1problems.PresentValueFactorFutureValue$15,000x1.25971=$18,896FutureValueofaSingleSumi=8%n=3LO5SolvefutureandpresentLO5Solvefutureandpresentvalueof1problems.PROOFBE6-1:BobAndersoninvested$15,000todayinafundthatearns8%compoundedannually.Towhatamountwilltheinvestmentgrowin3years?FutureValueofaSingleSumLO5SolvefutureandpresentBE6-1:BobAndersoninvested$15,000todayinafundthatearns8%compoundedsemiannually.Towhatamountwilltheinvestmentgrowin3years?0123456PresentValue$15,000Whattabledoweuse?FutureValue?LO5Solvefutureandpresentvalueof1problems.FutureValueofaSingleSumBE6-1:BobAndersoninvestedLO5Solvefutureandpresentvalueof1problems.PresentValueFactorFutureValue$15,000x1.26532=$18,980FutureValueofaSingleSumWhatfactor?i=4%n=6LO5SolvefutureandpresentValuenowofagivenamounttobepaidorreceivedinthefuture,assumingcompoundinterest.Single-SumProblemsPresentValueofaSingleSumLO5Solvefutureandpresentvalueof1problems.Where:FV

= futurevaluePV = presentvalue(principalorsinglesum)

= presentvaluefactorfornperiodsatiinterestPVFn,iValuenowofagivenamounttoLO5Solvefutureandpresentvalueof1problems.PresentValueofaSingleSumIllustration:Whatisthepresentvalueof$84,253tobereceivedorpaidin5yearsdiscountedat11%compoundedannually?=$50,000Illustration6-11LO5SolvefutureandpresentPresentValueofaSingleSumLO5Solvefutureandpresentvalueof1problems.Whattabledoweuse?Illustration:Whatisthepresentvalueof$84,253tobereceivedorpaidin5yearsdiscountedat11%compoundedannually?AlternateCalculationIllustration6-11PresentValueofaSingleSumL$84,253FutureValueFactorPresentValuex.59345=$50,000PresentValueofaSingleSumWhatfactor?i=11%n=5LO5Solvefutureandpresentvalueof1problems.$84,253FutureValueFactorPreseBE6-2:CarolineandCliffordneed$25,000in4years.Whatamountmusttheyinvesttodayiftheirinvestmentearns12%compoundedannually?LO5Solvefutureandpresentvalueof1problems.PresentValueofaSingleSum0123456PresentValue?Whattabledoweuse?FutureValue$25,000BE6-2:CarolineandClifford$25,000FutureValueFactorPresentValuex.63552=$15,888PresentValueofaSingleSumWhatfactor?i=12%n=4LO5Solvefutureandpresentvalueof1problems.$25,000FutureValueFactorPrese0123456PresentValue?PresentValueofaSingleSumFutureValue$25,000LO5Solvefutureandpresentvalueof1problems.Whattabledoweuse?BE6-2:CarolineandCliffordneed$25,000in4years.Whatamountmusttheyinvesttodayiftheirinvestmentearns12%compoundedquarterly?0123456PresentValue?PresentV$25,000FutureValueFactorPresentValuex.62317=$15,579PresentValueofaSingleSumi=3%n=16LO5Solvefutureandpresentvalueof1problems.$25,000FutureValueFactorPreseSingle-SumProblemsSolvingforOtherUnknownsLO5Solvefutureandpresentvalueof1problems.Example—ComputationoftheNumberofPeriodsTheVillageofSomonaukwantstoaccumulate$70,000fortheconstructionofaveteransmonumentinthetownsquare.Atthebeginningofthecurrentyear,theVillagedeposited$47,811inamemorialfundthatearns10%interestcompoundedannually.Howmanyyearswillittaketoaccumulate$70,000inthememorialfund?Illustration6-13Single-SumProblemsSolvingforSingle-SumProblemsLO5Solvefutureandpresentvalueof1problems.Example—ComputationoftheNumberofPeriodsIllustration6-14Usingthefuturevaluefactorof1.46410,refertoTable6-1andreaddownthe10%columntofindthatfactorinthe4-periodrow.Single-SumProblemsLO5SolveSingle-SumProblemsLO5Solvefutureandpresentvalueof1problems.Example—ComputationoftheNumberofPeriodsUsingthepresentvaluefactorof.68301,refertoTable6-2andreaddownthe10%columntofindthatfactorinthe4-periodrow.Illustration6-14Single-SumProblemsLO5SolveSingle-SumProblemsSolvingforOtherUnknownsLO5Solvefutureandpresentvalueof1problems.Example—ComputationoftheNumberofPeriodsTheVillageofSomonaukwantstoaccumulate$70,000fortheconstructionofaveteransmonumentinthetownsquare.Atthebeginningofthecurrentyear,theVillagedeposited$47,811inamemorialfundthatearns10%interestcompoundedannually.Howmanyyearswillittaketoaccumulate$70,000inthememorialfund?Illustration6-13Single-SumProblemsSolvingforSingle-SumProblemsSolvingforOtherUnknownsLO5Solvefutureandpresentvalueof1problems.Example—ComputationoftheInterestRateIllustration6-15AdvancedDesign,Inc.needs€1,409,870forbasicresearch5yearsfromnow.Thecompanycurrentlyhas€800,000toinvestforthatpurpose.Atwhatrateofinterestmustitinvestthe€800,000tofundbasicresearchprojectsof€1,409,870,5yearsfromnow?Single-SumProblemsSolvingforSingle-SumProblemsLO5Solvefutureandpresentvalueof1problems.Illustration6-16Usingthefuturevaluefactorof1.76234,refertoTable6-1andreadacrossthe5-periodrowtofindthefactor.Example—ComputationoftheInterestRateSingle-SumProblemsLO5SolveSingle-SumProblemsLO5Solvefutureandpresentvalueof1problems.Illustration6-16Usingthepresentvaluefactorof.56743,refertoTable6-2andreadacrossthe5-periodrowtofindthefactor.Example—ComputationoftheInterestRateSingle-SumProblemsLO5SolveAnnuitiesPeriodicpaymentsorreceipts(calledrents)ofthesameamount,Same-lengthintervalbetweensuchrents,andCompoundingofinterestonceeachinterval.Annuityrequires:LO6Solvefuturevalueofordinaryandannuitydueproblems.OrdinaryAnnuity

-rentsoccurattheendofeachperiod.AnnuityDue-rentsoccuratthebeginningofeachperiod.TwoTypesAnnuitiesPeriodicpaymentsorLO6Solvefuturevalueofordinaryandannuitydueproblems.FutureValueofanOrdinaryAnnuityRentsoccurattheendofeachperiod.Nointerestduring1stperiod.Annuities01PresentValue2345678$20,00020,00020,00020,00020,00020,00020,00020,000FutureValueLO6SolvefuturevalueoforLO6Solvefuturevalueofordinaryandannuitydueproblems.Illustration:Assumethat$1isdepositedattheend

ofeachof5years(anordinaryannuity)andearns12%interestcompoundedannually.Followingisthecomputationofthefuturevalue,usingthe“futurevalueof1”table(Table6-1)foreachofthefive$1rents.FutureValueofanOrdinaryAnnuityIllustration6-17LO6SolvefuturevalueoforR =

periodicrentFVF-OA = futurevaluefactorofanordinaryannuityi = rateofinterestperperiod

n = numberofcompoundingperiodsAformulaprovidesamoreefficientwayofexpressingthefuturevalueofanordinaryannuityof1.Where:n,iLO6Solvefuturevalueofordinaryandannuitydueproblems.FutureValueofanOrdinaryAnnuityR = periodiFutureValueofanOrdinaryAnnuityIllustration:Whatisthefuturevalueoffive$5,000depositsmadeattheendofeachofthenext5years,earninginterestof12%?=$31,764.25LO6Solvefuturevalueofordinaryandannuitydueproblems.Illustration6-19FutureValueofanOrdinaryAnFutureValueofanOrdinaryAnnuityIllustration:Whatisthefuturevalueoffive$5,000depositsmadeattheendofeachofthenext5years,earninginterestof12%?LO6Solvefuturevalueofordinaryandannuitydueproblems.Whattabledoweuse?AlternateCalculationIllustration6-19FutureValueofanOrdinaryAn$5,000DepositsFactorPresentValuex6.35285=$31,764Whatfactor?FutureValueofanOrdinaryAnnuityi=12%n=5LO6Solvefuturevalueofordinaryandannuitydueproblems.$5,000DepositsFactorPresentVaBE6-13:GomezInc.willdeposit$30,000ina12%fundattheendofeachyearfor8yearsbeginningDecember31,2010.Whatamountwillbeinthefundimmediatelyafterthelastdeposit?01PresentValueWhattabledoweuse?FutureValueofanOrdinaryAnnuity2345678$30,00030,00030,00030,00030,00030,00030,00030,000FutureValueLO6Solvefuturevalueofordinaryandannuitydueproblems.BE6-13:GomezInc.willdeposFutureValueofanOrdinaryAnnuityDepositFactorFutureValueLO6Solvefuturevalueofordinaryandannuitydueproblems.$30,000x12.29969=$368,991i=12%n=8FutureValueofanOrdinaryAnLO6Solvefuturevalueofordinaryandannuitydueproblems.FutureValueofanAnnuityDueRentsoccuratthebeginningofeachperiod.Interestwillaccumulateduring1stperiod.AnnuityDuehasonemoreinterestperiodthanOrdinaryAnnuity.Factor=multiplyfuturevalueofanordinaryannuityfactorby1plustheinterestrate.Annuities01234567820,00020,00020,00020,00020,00020,00020,000$20,000FutureValueLO6SolvefuturevalueoforLO6Solvefuturevalueofordinaryandannuitydueproblems.FutureValueofanAnnuityDueIllustration6-21ComparisonofOrdinaryAnnuitywithanAnnuityDueLO6SolvefuturevalueoforFutureValueofanAnnuityDueIllustration:Assumethatyouplantoaccumulate$14,000foradownpaymentonacondominiumapartment5yearsfromnow.Forthenext5years,youearnanannualreturnof8%compoundedsemiannually.Howmuchshouldyoudepositattheendofeach6-monthperiod?

R=$1,166.07LO6Solvefuturevalueofordinaryandannuitydueproblems.Illustration6-24ComputationofRentFutureValueofanAnnuityDueFutureValueofanAnnuityDueComputationofRentIllustration6-24$14,000=$1,166.0712.00611AlternateCalculationLO6Solvefuturevalueofordinaryandannuitydueproblems.FutureValueofanAnnuityDueFutureValueofanAnnuityDueIllustration:Supposethatacompany’sgoalistoaccumulate$117,332bymakingperiodicdepositsof$20,000attheendofeachyear,whichwillearn8%compoundedannuallywhileaccumulating.Howmanydepositsmustitmake?LO6Solvefuturevalueofordinaryandannuitydueproblems.Illustration6-25ComputationofNumberofPeriodicRents5.86660FutureValueofanAnnuityDueFutureValueofanAnnuityDueIllustration:Mr.Goodwrenchdeposits$2,500todayinasavingsaccountthatearns9%interest.Heplanstodeposit$2,500everyyearforatotalof30years.HowmuchcashwillMr.Goodwrenchaccumulateinhisretirementsavingsaccount,whenheretiresin30years?LO6Solvefuturevalueofordinaryandannuitydueproblems.Illustration6-27ComputationofFutureValueFutureValueofanAnnuityDueIllustration:BayouInc.willdeposit$20,000ina12%fundatthebeginningofeachyearfor8yearsbeginningJanuary1,Year1.WhatamountwillbeinthefundattheendofYear8?01PresentValueWhattabledoweuse?FutureValueofanAnnuityDue2345678$20,00020,00020,00020,00020,00020,00020,00020,000FutureValueLO6Solvefuturevalueofordinaryandannuitydueproblems.Illustration:BayouInc.willDepositFactorFutureValueLO6Solvefuturevalueofordinaryandannuitydueproblems.FutureValueofanAnnuityDue12.29969 x1.12=13.775652i=12%n=8$20,000x13.775652=$275,513DepositFactorFutureValueLO6LO7Solvepresentvalueofordinaryandannuitydueproblems.PresentValueofanOrdinaryAnnuityPresentvalueofaseriesofequalamountstobewithdrawnorreceivedatequalintervals.Periodicrentsoccurattheendoftheperiod.Annuities01PresentValue2341920$100,000100,000100,000100,000100,000.....100,000LO7SolvepresentvalueofoLO7Solvepresentvalueofordinaryandannuitydueproblems.Illustration:Assumethat$1istobereceivedattheendofeachof5periods,asseparateamounts,andearns12%interestcompoundedannually.PresentValueofanOrdinaryAnnuityIllustration6-28LO7SolvepresentvalueofoAformulaprovidesamoreefficientwayofexpressingthepresentvalueofanordinaryannuityof1.Where:PresentValueofanOrdinaryAnnuityLO7Solvepresentvalueofordinaryandannuitydueproblems.AformulaprovidesamoreeffiPresentValueofanOrdinaryAnnuityIllustration:Whatisthepresentvalueofrentalreceiptsof$6,000each,tobereceivedattheendofeachofthenext5yearswhendiscountedat12%?Illustration6-30LO7Solvepresentvalueofordinaryandannuitydueproblems.PresentValueofanOrdinaryAIllustration:JaimeYuenwins$2,000,000inthestatelottery.Shewillbepaid$100,000attheendofeachyearforthenext20years.Howmuchhassheactuallywon?Assumeanappropriateinterestrateof8%.01PresentValueWhattabledoweuse?2341920$100,000100,000100,000100,000100,000PresentValueofanOrdinaryAnnuity.....LO7Solvepresentvalueofordinaryandannuitydueproblems.100,000Illustration:JaimeYuenwinsLO7Solvepresentvalueofordinaryandannuitydueproblems.PresentValueofanOrdinaryAnnuity$100,000ReceiptsFactorPresentValuex9.81815=$981,815i=5%n=20LO7SolvepresentvalueofoLO7Solvepresentvalueofordinaryandannuitydueproblems.PresentValueofanAnnuityDuePresentvalueofaseriesofequalamountstobewithdrawnorreceivedatequalintervals.Periodicrentsoccuratthebeginningoftheperiod.Annuities01PresentValue2341920$100,000100,000100,000100,000100,000.....100,000LO7SolvepresentvalueofoPresentValueofanAnnuityDueIllustration6-31ComparisonofOrdinaryAnnuitywithanAnnuityDueLO7Solvepresentvalueofordinaryandannuitydueproblems.PresentValueofanAnnuityDuIllustration:SpaceOdyssey,Inc.,rentsacommunicationssatellitefor4yearswithannualrentalpaymentsof$4.8milliontobemadeatthebeginningofeachyear.Iftherelevantannualinterestrateis11%,whatisthepresentvalueoftherentalobligations?Illustration6-33LO7Solvepresentvalueofordinaryandannuitydueproblems.PresentValueofanAnnuityDueIllustration:SpaceOdyssey,Illustration:

JaimeYuenwins$2,000,000inthestatelottery.Shewillbepaid$100,000atthebeginningofeachyearforthenext20years.Howmuchhassheactuallywon?Assumeanappropriateinterestrateof8%.01PresentValueWhattabledoweuse?2341920$100,000100,000100,000100,000100,000.....LO7Solvepresentvalueofordinaryandannuitydueproblems.100,000PresentValueofanAnnuityDueIllustration:JaimeYuenwinsLO7Solvepresentvalueofordinaryandannuitydueproblems.$100,000ReceiptsFactorPresentValuex10.60360=$1,060,360PresentValueofanAnnuityDuei=8%n=20LO7SolvepresentvalueofoIllustration:AssumeyoureceiveastatementfromMasterCardwithabalancedueof$528.77.Youmaypayitoffin12equalmonthlypaymentsof$50each,withthefirstpaymentdueonemonthfromnow.Whatrateofinterestwouldyoubepaying?LO7Solvepresentvalueofordinaryandannuitydueproblems.PresentValueofanAnnuityDueComputationoftheInterestRateReferringtoTable6-4andreadingacrossthe12-periodrow,youfind10.57534inthe2%column.Since2%isamonthlyrate,thenominalannualrateofinterestis24%(12x2%).Theeffectiveannualrateis26.82413%[(1+.02)

-1].12Illustration:AssumeyoureceLO8Solvepresentvalueproblemsrelatedtodeferredannuitiesandbonds.Rentsbeginafteraspecifiednumberofperiods.FutureValue-Calculationsameasthefuturevalueofanannuitynotdeferred.PresentValue-Mustrecognizetheinterestthataccruesduringthedeferralperiod.MoreComplexSituations012341920100,000100,000100,000.....FutureValuePresentValueDeferredAnnuitiesLO8SolvepresentvalueprobLO8Solvepresentvalueproblemsrelatedtodeferredannuitiesandbonds.TwoCashFlows:Periodicinterestpayments(annuity).Principalpaidatmaturity(single-sum).01234910140,000140,000140,000$140,000.....140,000140,0002,000,000ValuationofLong-TermBondsMoreComplexSituationsLO8SolvepresentvalueprobBE6-15:WongInc.issuesHK$2,000,000of7%bondsduein10yearswithinterestpayableatyear-end.Thecurrentmarketrateofinterestforbondsofsimilarriskis8%.WhatamountwillWongreceivewhenitissuesthebonds?01PresentValue234910140,000140,000140,000$140,000.....140,000ValuationofLong-TermBonds2,140,000LO8Solvepresentvalueproblemsrelatedtodeferredannuitiesandbonds.BE6-15:WongInc.issuesHK$2LO8Solvepresentvalueproblemsrelatedtodeferredannuitiesandbonds.$140,000x6.71008=$939,411InterestPaymentFactorPresentValueValuationofLong-TermBondsPVofInteresti=8%n=10LO8SolvepresentvalueprobLO8Solvepresentvalueproblemsrelatedtodeferredannuitiesandbonds.$2,000,000x.46319=$926,380PrincipalFactorPresentValueValuationofLong-TermBondsPVofPrincipali=8%n=10LO8SolvepresentvalueprobBE6-15:WongInc.issues$2,000,000of7%bondsduein10yearswithinterestpayableatyear-end.ValuationofLong-TermBondsLO8Solvepresentvalueproblemsrelatedtodeferredannuitiesandbonds.PresentvalueofInterest $939,411PresentvalueofPrincipal 926,380 Bondcurrentmarketvalue $1,865,791

BE6-15:WongInc.issues$2,ValuationofLong-TermBondsLO8Solvepresentvalueproblemsrelatedtodeferredannuitiesandbonds.BE6-15:ValuationofLong-TermBondsLOInternationalAccountingStandardNo.36

introducesanexpectedcashflowapproachthatusesarangeofcashflowsandincorporatestheprobabilitiesofthosecashflows.ChoosinganAppropriateInterestRateThreeComponentsofInterest:PureRateExpectedInflationRateCreditRiskRateLO9Applyexpectedcashflowstopresentvaluemeasurement.PresentValueMeasurementRisk-freerateofreturn.IASBstatesacompanyshoulddiscountexpectedcashflowsbytherisk-freerateofreturn.InternationalAccountingStandE