Compare and Contrast the Two Methods for Amortizing the Discount/premium

question 24

Essay

Compare and contrast the two methods for amortizing the discount/premium.
Interest expense in the first period is higher under which method for bonds sold at a discount? For bonds sold at a premium?
Why does IFRS require public companies to use the effective interest method?
Why do the Accounting Standards for Private Enterprises allow companies to use the straight-line method?

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Definitions:

Profitability Index

A capital budgeting tool that measures the relative profitability of an investment by dividing the present value of its future cash flows by the initial investment cost.

Present Value

The present value of a future amount of money or series of cash flows, based on a given return rate.

Initial Investment

Initial investment refers to the capital amount spent to start a business venture, project, or purchase an asset.

Intangible Benefit

A non-quantifiable advantage or positive outcome derived from a product or service, such as brand recognition or customer loyalty.