Concept Introduction:
Long term bonds are issued by companies to feed their long term fund requirements. These bonds are retired at their maturity. The bonds may be retired at par or premium which may result in the gain or loss on retirement of the bonds.
To indicate:The timing of recording the gain/loss on retirement of the bonds in the consolidated income statement.
Explanation of Solution
While consolidating the parent company accounts with the accounts of its subsidiaries, the effects of intercompany transactions are required to be adjusted to get the consolidated balance.
The gain or loss on retirement of the bonds of the parent company is recorded at the time of retirement of bonds and gain/loss on retirement of the subsidiary company’s bonds is recorded at the time of consolidation in the consolidated income statement.
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