[sdollen64]

Evening All! Was curious about bond issue costs as I have conflicting instruction on how to handle them. One review course states that you amortize bond issue expense over the life of the bond, using straight line depreciation method. Another review course states you amortize the expense over the life using the effective interest method.

The review course that stated using the SL method also stated that you can use the straight line method if the discount/premium is “immaterial”.

So, I’m a little confused on this and hope someone can clear that up.

Thanks in advance!

[aaronmo]

I was taught to treat them the same as a premium…so effective interest rate.

If memory serves, and it's been a while, there are situations where SL IS used, though I don't think it's GAAP. I'd say to use the same mechanism as however you're calculating the premium/discount interest (typically GAAP).

[sdollen64]

Thanks aaronmo! I was just coming back on here to say that I did a little more digging with the 2nd review course which stated to use the effective interest rate method and it did say in theory you could use S/L; however, like you mentioned, it isn't GAAP. And, you could only use the S/L method if it wouldn't result in a significant difference.

Your point about using the same method that is being used for the premium/discount is well taken.

Thanks for your input and help!

[vodrldnr]

Under GAAP, treat it like discount or premium.

When it comes to exam, use S/L if problem specifically ask you to do so.

[Author]

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