Other material non-cash charges were recorded for depreciation, depletion and amortisation ('DD&A') amounting to US$24.7 million and US$10.0 million for non-cash accretion of bond discount
, lease liability and decommission provisions.
* Measuring liabilities using a discount rate (investment return assumption) based on a high-grade corporate bond discount
rate of 5.5 percent for 2010 and 2011 (this differs from GASB's permitted use of the plan's investment return assumption until the plan's assets are projected to be exhausted, when a bond-driven discount rate takes effect);
If the bond discount
is large, pushing the taxpayer into a higher tax bracket, a more comprehensive strategy may be to sell some bonds before maturity but after the taxpayer has retired and is subject to a lower marginal tax rate.
However, the amount of such a reduction is limited to the interest or interest equivalent (e.g., bond discount
) on the bond that is not includable in the donor's income.
Example 3a (bond discount
): On January 1, 2007, a trustee purchases 100,000 units of Edsel Motor Co.
For a discount bond, the current yield is more than the coupon rate (7%) but less than the expected yield-to-maturity (8.16%) (the bond discount
boosts the total return as the bond is purchased for $959.45 but will mature at $1,000).
He said those in Congress who believe that granting a temporary two-year corporate bond discount
favor to defined benefit plan sponsors will create pressure for the needed comprehensive reform of the pension system "have got it backwards."
Note: Receipt of cash does not always represent all of the interest income to be reported for Federal and state income tax purposes; amortization of bond discount
is also included.
The resulting bond discount
should be amortized under the effective interest method from the issue date to maturity date.
Current GAAP requires that any bond discount
or premium be systematically amortized to income.
If P - F < 0, then the absolute value of D is equal to the bond discount
and it represents how much less the price of the bond is than its face value.
Temporary differences expected to arise in the future as a result of amortization of bond discount
or premium for financial reporting purposes should not be considered in the scheduling process.