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LONG-TERM INVESTMENT (BONDS)

LONG-TERM INVESTMENT (BONDS). WEEK 11. EXERCISE. 1 st july 2007 PT Cahaya purchases Rp 50.000.000,- of 8% bonds of PT.DITHO due in 8 years and 9 months later. The purchase price is Rp 41.706.000 plus interest accrued that paid on 1 st april and 1 st of October .

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LONG-TERM INVESTMENT (BONDS)

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  1. LONG-TERM INVESTMENT(BONDS) WEEK 11

  2. EXERCISE 1stjuly 2007 PT Cahaya purchases Rp 50.000.000,- of 8% bonds of PT.DITHO due in 8 years and 9 months later. The purchase price is Rp 41.706.000 plus interest accrued that paid on 1stapril and 1st of October . On 30th June 2014 PT Cahaya sell that bonds on Rp. 47.350.000,- Required questions: • Calculate bonds’ cost • Calculate interest accrued • Journals to record all transactions

  3. BASIC CONCEPT Long-term investment is INVESTMENT TO OTHER COMPANIES FOR MORE THAN ONE ACCOUNTING PERIOD ( > 1 YEAR)

  4. LONG TERM INVESTMENT

  5. PURPOSES • GAINING ADDITIONAL REVENUE GAINING ADDITIONAL REVENUE • BUILDING A NETWORK WITH CLIENTS / OTHER CORPORATIONS • CONTROLLING OTHER COMPANIES

  6. ACCOUNTING FOR LONG-TERM INVESTMENT • LONG-TERM INVESTMENT IS RECORDED BASED ON ITS COST FOR BOTH BONDS AND SHARE • HOW TO CALCULATE IT?

  7. TYPES OF BONDS

  8. AMORTIZED BASED ON THE USEFUL LIFE PREMIUM (AGIO)/ DISCOUNT ( DISAGIO) AMOTIZATION IS CALCULATED ON THE END OF ACCOUNTING PERIOD DIFFERENCE FACE AMOUNT / NOMINAL VALU COST

  9. EXAMPLE 1 MAY 2004 PT. FIA BOUGHT 1.000 BONDS OF PT XYZ WITH A NOMINAL VALUE OF RP 10.000; / BOND AT 105% PLUS A BROKERAGE FEE RP 700.000,. BONDS’ INTEREST RATE WAS 12%. INTEREST IS PAID ON 1/3 – 1/9. BONDS USEFUL LIFE WAS 5 YEARS. Calculate: • Cost • Accrued interest • Journals • Adjustment journal at 31 December

  10. SELLING BONDS BEFORE MATURITY • CALCULATE BONDS’ MARKET PRICE AND ADDITIONAL COS • CALCULATE CARRYING AMOUNT OF BONDS INVESTMENT 3. DIFFERENTS: (1) VS (2) = PROFIT/LOSS ON BONDS SELLING CA = COST – PREMIUM /AGIO THAT HAS BEEN AMOTIZED CA = COST + DISCOUNT / DISAGIO HAS NOT BEEN AMOTIZED YET PROFIT IF : (1) > (2) LOSS IF : (1) < (2)

  11. EXAMPLE 1 OCT 2006 PT. FIA SOLD PT XYZ’S BONDS WITH A NOMINAL VALUE OF RP 4.000.000; AT 110%. ITS BONDS INTEREST WAS 12%. SELLING FEE WAS RP 200.000; HARGA KURS : 110% X 4.000.000; RP 4.400.000; BIAYA PENJUALAN RP 200.000; HARGA JUAL STL BIAYA PENJUALAN RP 4.200.000; HARGA PROLEHAN RP 4.480.000; AMORTISASI AGIO : TH 2004 RP 64.000; TH 2005 RP 96.000; TH 2006 RP 72.000; RP 232.000; NILAI BUKU OBLIGASI RP 4.248.000; RUGI PENJUALAN OBLIGASI RP 48.000; KURS VALUE : 110% X 4.000.000; RP 4.400.000; SELLING FEE RP 200.000; MARKET PRICE RP 4.200.000; COST VALUE OF BONDSRP 4.480.000; PREMIUM’S AMOTIZATION: 2004 RP 64.000; 2005 RP 96.000; 2006 RP 72.000; RP 232.000; CARRYINGAMOUNT RP 4.248.000; LOSS OF BONDS SELLING RP 48.000; +

  12. BONDS INTEREST: (1/12 X12/100) X RP 4.000.000; = 40.000; 01 OCTOBER 2006 : CASH RP 4.240.000; LOSS ON BONDS SELLING RP 48.000; INVESTMENT ON BONDS (PT.FIA) RP 4.248.000; INTEREST REVENUE RP 40.000;

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