Question Tag: Amortised Cost

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  • 9 Marks

FR – May 2016 – L2 – Q7b – Financial Instruments (IAS 32, IFRS 9)

Calculate amortised cost and fair value of a financial liability issued by Anifowose Plc.

Anifowose Plc issued a debt instrument at its fair value of N100 million on January 1, 2013. The debt instrument is to mature in 2017. It has a principal amount of N125 million and carries a fixed interest rate of 4.72%, which is paid annually. The effective interest rate is 10%, and on December 31, 2015, it had a fair value of 105 for every N10 nominal value. The company makes up its accounts to December 31 every year.

Required:

i. Show your computation schedule for the amortised cost of the financial liability up to December 31, 2015, on the assumption that the financial liability is valued at amortised cost.

ii. What is the value of the financial liability as of December 31, 2015, if the fair value option is adopted by Anifowose Plc?

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  • 6 Marks

FR – May 2016 – L2 – Q7a – Financial Instruments (IAS 32, IFRS 9)

Explain fair value and amortised cost measurement of financial assets under IAS 39 with examples of applicable asset classes.

After initial recognition in the Financial Statements, Financial Assets are measured either at fair value or amortised cost according to the provisions of IAS 39 – Financial Instruments: Recognition & Measurement.

Required:

Briefly explain how fair value and amortised costs of financial assets are determined and give one example each of the class of financial assets that can be measured using the methods.

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  • 4 Marks

FR – Nov 2022 – L2 – Q4c – IFRS 9 Financial Instrument Classes

Describe two classifications of financial instruments under IFRS 9, including criteria for measurement.

Explain TWO classes of financial instruments in accordance with IFRS 9. (4 Marks)

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  • 9 Marks

FR – March 2024 – L2 – Q2a – Financial Reporting Standards and Their Applications

Evaluate financial reporting treatment of Sikapa and Cocoa bonds in accordance with IFRS 9: Financial Instruments.

Kombra Ltd (Kombra) is a market leader in the printing and publishing industry. To benefit from a potential future decline in interest rates, Kombra invests in bonds and issues callable bonds. It occasionally trades these bonds by immediately flipping them for a profit. Others are held for the long term.

Kombra purchased two bonds on 1 January 2023. Details of the two particular bonds are as follows:

Sikapa Bond Cocoa Bond
Nominal value of bond GH¢47.25 million GH¢31.5 million
Coupon rate 4% 5%
Purchase price of bond GH¢40.425 million GH¢29.4 million
Effective yield to maturity 6.75% 7.8%

The Sikapa bond was bought with the intention of keeping it for a long time and withdrawing the interest and principal as they fall due.

The Cocoa bond was bought at a deep discount, and the aim is to wait until the market value increases, and then sell it at a profit. The Cocoa bond had a fair value of GH¢28.875 million as of December 31, 2023.

In both situations, the coupon, which is due on December 31 each year, has been paid as agreed.

Required:
In the case of each bond above, show the financial reporting treatment required by IFRS 9: Financial Instruments for the year ended 31 December 2023. Show all workings clearly.

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  • 5 Marks

CR – Nov 2019 – L3 – Q2c – Financial instruments: Presentation and disclosure 511

Explain the accounting treatment for bonds issued by Kaduna Ltd using the amortised cost method.

c) On 1 January 2018, Kaduna Ltd issued 10,000 bond instruments with a face value of GH¢100 at a market price of GH¢95. Bond brokers charged fees totalling GH¢18,000 in relation to the bond issue. The bonds carry a coupon rate of 5% and are redeemable in 3 years at face value.

Kaduna Ltd wishes to account for the bonds using IFRS 9: Financial Instruments amortised cost method. However, there was some confusion about how the bonds should be accounted for. Currently, the cash received from the bond issue of GH¢950,000 has been recognised as a non-current liability. The broker fees of GH¢18,000 were deducted from the non-current liability carrying amount, the coupon payment of GH¢50,000 has been expensed in arriving at profit before tax, and the effective rate of interest is 7.62%.

Required:
Justify the necessary accounting treatment of the above transaction relating to Kaduna Ltd for the year ended 31 December 2018. (5 marks)

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  • 9 Marks

FR – May 2016 – L2 – Q7b – Financial Instruments (IAS 32, IFRS 9)

Calculate amortised cost and fair value of a financial liability issued by Anifowose Plc.

Anifowose Plc issued a debt instrument at its fair value of N100 million on January 1, 2013. The debt instrument is to mature in 2017. It has a principal amount of N125 million and carries a fixed interest rate of 4.72%, which is paid annually. The effective interest rate is 10%, and on December 31, 2015, it had a fair value of 105 for every N10 nominal value. The company makes up its accounts to December 31 every year.

Required:

i. Show your computation schedule for the amortised cost of the financial liability up to December 31, 2015, on the assumption that the financial liability is valued at amortised cost.

ii. What is the value of the financial liability as of December 31, 2015, if the fair value option is adopted by Anifowose Plc?

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  • 6 Marks

FR – May 2016 – L2 – Q7a – Financial Instruments (IAS 32, IFRS 9)

Explain fair value and amortised cost measurement of financial assets under IAS 39 with examples of applicable asset classes.

After initial recognition in the Financial Statements, Financial Assets are measured either at fair value or amortised cost according to the provisions of IAS 39 – Financial Instruments: Recognition & Measurement.

Required:

Briefly explain how fair value and amortised costs of financial assets are determined and give one example each of the class of financial assets that can be measured using the methods.

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  • 4 Marks

FR – Nov 2022 – L2 – Q4c – IFRS 9 Financial Instrument Classes

Describe two classifications of financial instruments under IFRS 9, including criteria for measurement.

Explain TWO classes of financial instruments in accordance with IFRS 9. (4 Marks)

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  • 9 Marks

FR – March 2024 – L2 – Q2a – Financial Reporting Standards and Their Applications

Evaluate financial reporting treatment of Sikapa and Cocoa bonds in accordance with IFRS 9: Financial Instruments.

Kombra Ltd (Kombra) is a market leader in the printing and publishing industry. To benefit from a potential future decline in interest rates, Kombra invests in bonds and issues callable bonds. It occasionally trades these bonds by immediately flipping them for a profit. Others are held for the long term.

Kombra purchased two bonds on 1 January 2023. Details of the two particular bonds are as follows:

Sikapa Bond Cocoa Bond
Nominal value of bond GH¢47.25 million GH¢31.5 million
Coupon rate 4% 5%
Purchase price of bond GH¢40.425 million GH¢29.4 million
Effective yield to maturity 6.75% 7.8%

The Sikapa bond was bought with the intention of keeping it for a long time and withdrawing the interest and principal as they fall due.

The Cocoa bond was bought at a deep discount, and the aim is to wait until the market value increases, and then sell it at a profit. The Cocoa bond had a fair value of GH¢28.875 million as of December 31, 2023.

In both situations, the coupon, which is due on December 31 each year, has been paid as agreed.

Required:
In the case of each bond above, show the financial reporting treatment required by IFRS 9: Financial Instruments for the year ended 31 December 2023. Show all workings clearly.

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  • 5 Marks

CR – Nov 2019 – L3 – Q2c – Financial instruments: Presentation and disclosure 511

Explain the accounting treatment for bonds issued by Kaduna Ltd using the amortised cost method.

c) On 1 January 2018, Kaduna Ltd issued 10,000 bond instruments with a face value of GH¢100 at a market price of GH¢95. Bond brokers charged fees totalling GH¢18,000 in relation to the bond issue. The bonds carry a coupon rate of 5% and are redeemable in 3 years at face value.

Kaduna Ltd wishes to account for the bonds using IFRS 9: Financial Instruments amortised cost method. However, there was some confusion about how the bonds should be accounted for. Currently, the cash received from the bond issue of GH¢950,000 has been recognised as a non-current liability. The broker fees of GH¢18,000 were deducted from the non-current liability carrying amount, the coupon payment of GH¢50,000 has been expensed in arriving at profit before tax, and the effective rate of interest is 7.62%.

Required:
Justify the necessary accounting treatment of the above transaction relating to Kaduna Ltd for the year ended 31 December 2018. (5 marks)

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