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- The valuation and analysis of a firm's liabilities are paramount to conducting an analysis of its liquidity and long-term solvency. Liabilities are defined as "probable future sacrifices of economic benefits arising out of present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events."
- Current liabilities are defined as obligations or debts that are expected to be satisfied within the next twelve months while long-term liabilities represent obligations that will be met or settled over a period of more than one year.
- The Bonds are primarily used to borrow funds from the general public or institutional investors. Most commonly, the issuance of bonds are done at a price other than face value. In such cases, the amount of cash exchanged is equivalent to the total of the present value of the interest and principal payments. The excess of cash proceeds over the face value is recorded as a premium, if the cash proceeds are greater than the face value and the excess of face value over the cash proceeds is recorded as discount, if the face value is greater than the cash proceeds.
- Zero-coupon bonds are defined as "a specialized kind of debt instruments where the interest payments are not made on a regular basis but instead are accumulated and paid on the maturity of the bond along with the principal." In other words, these are the bonds which are purchased at discount and redeemed at par with no coupon payments at regular intervals. Hence they are also referred to as "pure discount instruments"
- Convertible bonds are bonds are issued with the right to convert them into common stock of the company at the holder's option.
- Debt Covenants refer to certain restrictions imposed on the company issuing bonds by its bond holders. They are agreements between a company and its creditors that the company will operate within certain limits. Debt covenants are simply defined the conditions for borrowing.
- The Accounting treatment for retirement of debt before maturity involves recognition of the loss or gain on retirement of debt as an extraordinary item. The loss or gain is computed by taking the difference between the reacquisition price and the net carrying amount or the book value of the debt.