About this tool
Under IFRS 9, a debt instrument held to collect contractual cash flows is measured at amortised cost using the effective interest method. The instrument is recognised at fair value plus transaction costs, and interest income is recognised at a constant effective interest rate (EIR) on the carrying amount — not at the cash coupon rate.
This generator solves the EIR for your bond, builds the full period-by-period amortisation schedule, and produces the journal entries you need: day-1 recognition, the effective-interest accrual for any period (with the premium amortised or discount accreted), and redemption at maturity.
How to use it
- Enter the bond — face value, clean price, coupon, frequency, transaction costs and the settlement and maturity dates.
- Read the solved effective interest rate, initial carrying amount and premium/discount, plus the full amortisation schedule.
- Pick the period to show the accrual entry for, then download the journal entries as a print-ready PDF.
Frequently asked questions
What is the effective interest method?
The effective interest method recognises interest income at a constant rate (the effective interest rate) on the carrying amount of a financial asset. It spreads any premium or discount, plus transaction costs, over the life of the instrument so that the carrying amount amortises to face value at maturity.
How is the effective interest rate (EIR) calculated?
The EIR is the rate that discounts all of the instrument's expected future cash flows — coupons and the redemption amount — back to its initial carrying amount (purchase price plus transaction costs). This tool solves for it numerically and reports both the per-period and annualised rate.
How are premium and discount bonds accounted for under IFRS 9?
For a discount bond (bought below par), interest income exceeds the cash coupon and the difference accretes the carrying amount up to par. For a premium bond (bought above par), interest income is below the coupon and the excess amortises the carrying amount down to par. Either way the carrying amount equals face value at maturity.
What journal entries does a bond at amortised cost require?
Three key entries: day-1 recognition (debit the investment at carrying amount, credit cash); each period's interest accrual (debit interest receivable for the coupon and adjust the investment for amortisation, credit interest income at the EIR); and maturity (debit cash, credit the investment at face value).