How is the retirement of bonds recorded?
How is the retirement of bonds recorded?
Retirement of bonds can be at maturity date or before maturity date.
Accounting for bonds retired at maturity: When bonds are retiring at maturity, then company pays out cash and removes bonds payable from its balance sheet.
Accounting for bonds retired before maturity: When bonds are retired before maturity then gain or loss may arise. When price paid for retirement of bonds is greater than carrying amount of bonds , then a loss needs to be recorded by the company.
If price paid for retirement of bonds is less than carrying amount of bonds, then a gain needs to be recognised by the company.
Example of loss on retirement of bonds:
A company has issued value $10,000 bonds 2 years ago at a discount of $1200. Current balance of discount on bonds is $1000. Company wants to retire the bonds at $9500.
Carrying value = $10,000 - $1000 = $9000
Retirement value = $9500
Loss= $9500 - $9000 = $500
Accounting entry will be:
| Date | Particulars | Debit($) | Credit ( $) |
| Bonds payable | 10,000 | ||
| Loss on retirement of bonds | 500 | ||
| Cash | 9500 | ||
| Discount on bonds | 1000 |
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