Chapter 13: Financial Instruments - Long-Term Debt

Perspective and Issues

Long-term debt represents future sacrifices of economic benefits to be repaid over a period of more than one year or, if longer, the operating cycle. Long-term debt includes bonds payable, notes payable, lease obligations, pension and deferred compensation plan obligations, deferred income taxes, and unearned revenue. The accounting for bonds and long-term notes is covered in this chapter. Since at present, international accounting standards address only a few of these topics, the accounting recommendations herein are those of the authors, based on practices in many nations.

The proper valuation of long-term debt is the present value of future payments using the market rate of interest, either stated or implied in the transaction, at the date the debt was incurred. An exception to the use of the market rate of interest stated or implied in the transaction in valuing long-term notes occurs when it is necessary to use an imputed interest rate, if the debt is either noninterest-bearing or bears a clearly nonmarket rate of interest.

Sources of IAS

IAS 32, 39