This guide provides step-by-step instructions on recording a bond purchase at Cost Value and adjusting the Market Value difference. The manual ensures compliance with financial reporting requirements by properly reflecting the bond transaction and its market value fluctuations in Profit & Loss (P&L).
a) Record Bond purchase at cost value
To record the purchase of a Bond at cost value create a Bank Payment document with transaction type as Others and in the Payment detail tab, choose the GL other non-current financial Asset GL.
Below entry would be created,
2. Record Coupon Interest Received
To record coupon interest received, create a Cash/Bank receipt with the transaction type set to Others. Select Finance Income as the account, or create a dedicated Income account to maintain a separate record of the interest received.
3. Adjustment based on Market Value difference-
Market Value: The bond's current value is influenced by market conditions, including interest rates, credit rating, and time to maturity. It is re-evaluated at market prices at each reporting date. The difference between Cost Value and Market Value should be reflected in the P&L, typically as an unrealized gain/loss or a fair value adjustment.
Set up a dedicated General Ledger (GL) account to separately track unrealized gains and losses from market value adjustments.
Generate an Other Income/Other Expense Document
- If the Market Value exceeds the Cost Value → Record the difference as Other Income (Unrealized Gain).
Dr Investment in Bonds (Asset)
Cr Unrealized Gain (P&L)
- If the Market Value is lower than the Cost Value → Record the difference as Other Expenses (Unrealized Loss).
Dr Unrealized Loss (P&L)
Cr Investment in Bonds (Asset)
Thanks for being a FirstBit Customer!