The book value of a bond purchased at a premium or discount and classified, as an investment in marketable securities must be adjusted each period for amortization of the premium or discount.

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The book value of a bond purchased at a premium or discount and classified as an investment in marketable securities must be adjusted each period for amortization of the premium or discount. This is required by generally accepted accounting principles (GAAP) to reflect the true cost of the bond over its life. Amortization is the process of systematically reducing the premium or discount to its original value at maturity, either by taking a portion of the premium into income each period for bonds purchased at a premium, or by adding a portion of the discount to interest expense each period for bonds purchased at a discount.

The Book Value of a Bond Purchased at a Premium