Amortized Cost – NBC Institute

CR – May 2019 – L3 – Q3 – Financial Instruments (IFRS 9, IAS 32, IAS 39)

Discuss the classification of financial assets under IFRS 9 and evaluate the appropriate accounting treatment of a loan granted to a special purpose entity.

Question

Ariba Bank Plc. (the Bank) is a Tier 1 Bank in Nigeria with branch network across all the six geo-political zones of the country. Its credit portfolio is spread among many industries with a special focus on the oil and gas industry and real estate.

One of its major customers with a very good credit standing is Dunga Property Development Company (DPDC).

The management of DPDC recently approved a plan to build four shopping malls in major cities across the country. A special purpose entity was registered as a limited liability company, Dunga Malls Limited (DML), dedicated to the development and management of the malls. The project will be solely financed by a loan to be obtained from Ariba Bank. There will be no equity contribution from DPDC other than the minimum required by law to establish a company.

Ariba Bank has approved a loan of N80 billion at a fixed interest rate of 15% per annum payable annually in arrears. The loan has a maturity of 10 years with a moratorium of 3 years. There was no transaction cost and therefore the contractual rate is the same as the effective rate. The loan was granted directly to DML on 1 January, 2018.

The Financial Controller of Ariba Bank Plc. is concerned about the accounting treatment of the loan as IFRS 9 Financial Instrument was adopted by the bank during the year. He noted that the majority of the bank loans are classified at amortized cost in the statement of financial position, but the loans must pass certain tests before such classification.

The Chief Risk Officer noted in his memo that the arrangement is substantially the same as the other borrowing arrangements of the bank except that a borrowing entity would normally have equity or other assets that could be called upon by the bank in a case of default other than the asset being financed.

Required:
a. Discuss how financial assets are classified in accordance with the requirements of IFRS 9. (8 Marks)
b. Advise the Bank on how the loan granted to DML should be classified in the statement of financial position. (6 Marks)
c. Discuss, with supporting calculations, how the loan will be accounted for in the financial statement of the bank for the year ended 31 December, 2018. (6 Marks)

Answer

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Tags: Amortized Cost, Business Model Test, Effective Interest Rate, Financial Assets, IFRS 9, SPPI Test
Level: Level 3

Topic: IAS 39)

FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9

Calculate the amount to be recognized in Asamankese Ltd’s financial statements for a bond purchased at a discount under IFRS 9.

Question

Asamankese Ltd (Asamankese) purchased a 6% GH¢50 million bond on 1 August 2018 at a 10% discount to par value. Expenses of purchase were GH¢500,000. The bond is due for redemption on 31 July 2028 at par. The effective annual interest rate to maturity is 7.3%. Asamankese intends to hold the bond until its maturity date.

Required:
In accordance with IFRS 9: Financial Instruments, how much should be recognized in Asamankese’s financial statements in respect of the above transaction for the year ended 31 July 2019 (to two decimal places)?

Answer

Find Related Questions by Tags, levels, etc.

Tags: Amortized Cost, Bonds, Effective Interest Rate, IFRS 9
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: MAY 2020

FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9

Calculate the amount to be recognized in Asamankese Ltd’s financial statements for a bond purchased at a discount under IFRS 9.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Amortized Cost, Bonds, Effective Interest Rate, IFRS 9
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: MAY 2020

CR – Nov 2017 – L3 – Q2e – 17 Financial instruments: Recognition and measurement Corporate reporting

Advise on the accounting treatment for an investment bond not held to maturity under IFRS 9.

Question

DanKay Ltd bought a ten-year bond on 1 August 2016 at a cost of GH¢45 million. The bond carries an interest coupon of GH¢5 million paid annually in arrears, and its effective yield to maturity was 12% at the date of purchase. DanKay Ltd is holding the bond as a speculative investment, expecting its value to increase, and hopes to sell the bond at a profit in the short to medium term. On 31 July 2017, its reporting date, the fair value of the bond had declined to GH¢43 million. The interest payment was received as scheduled.

Required:
Advise DanKay Ltd on the treatment of the above in the financial statements for the year ended 31 July 2017 in accordance with IFRS 9: Financial Instruments.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Amortized Cost, Bond Valuation, Fair Value, Financial instruments, Investment
Level: Level 3

Topic: Financial instruments: Recognition and measurement Corporate reporting
Series: NOV 2017

CR – May 2019 – L3 – Q3 – Financial Instruments (IFRS 9, IAS 32, IAS 39)

Discuss the classification of financial assets under IFRS 9 and evaluate the appropriate accounting treatment of a loan granted to a special purpose entity.

Question

One of its major customers with a very good credit standing is Dunga Property Development Company (DPDC).

Answer

Find Related Questions by Tags, levels, etc.

Tags: Amortized Cost, Business Model Test, Effective Interest Rate, Financial Assets, IFRS 9, SPPI Test
Level: Level 3

Topic: IAS 39)

FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9

Calculate the amount to be recognized in Asamankese Ltd’s financial statements for a bond purchased at a discount under IFRS 9.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Amortized Cost, Bonds, Effective Interest Rate, IFRS 9
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: MAY 2020

FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9

Calculate the amount to be recognized in Asamankese Ltd’s financial statements for a bond purchased at a discount under IFRS 9.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Amortized Cost, Bonds, Effective Interest Rate, IFRS 9
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: MAY 2020

CR – Nov 2017 – L3 – Q2e – 17 Financial instruments: Recognition and measurement Corporate reporting

Advise on the accounting treatment for an investment bond not held to maturity under IFRS 9.

Question

Required:
Advise DanKay Ltd on the treatment of the above in the financial statements for the year ended 31 July 2017 in accordance with IFRS 9: Financial Instruments.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Amortized Cost, Bond Valuation, Fair Value, Financial instruments, Investment
Level: Level 3

Topic: Financial instruments: Recognition and measurement Corporate reporting
Series: NOV 2017

Question Tag: Amortized Cost

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CR – May 2019 – L3 – Q3 – Financial Instruments (IFRS 9, IAS 32, IAS 39)

Discuss the classification of financial assets under IFRS 9 and evaluate the appropriate accounting treatment of a loan granted to a special purpose entity.

FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9

Calculate the amount to be recognized in Asamankese Ltd’s financial statements for a bond purchased at a discount under IFRS 9.

FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9

Calculate the amount to be recognized in Asamankese Ltd’s financial statements for a bond purchased at a discount under IFRS 9.

CR – Nov 2017 – L3 – Q2e – 17 Financial instruments: Recognition and measurement Corporate reporting

Advise on the accounting treatment for an investment bond not held to maturity under IFRS 9.

CR – May 2019 – L3 – Q3 – Financial Instruments (IFRS 9, IAS 32, IAS 39)

Discuss the classification of financial assets under IFRS 9 and evaluate the appropriate accounting treatment of a loan granted to a special purpose entity.

FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9

Calculate the amount to be recognized in Asamankese Ltd’s financial statements for a bond purchased at a discount under IFRS 9.

FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9

Calculate the amount to be recognized in Asamankese Ltd’s financial statements for a bond purchased at a discount under IFRS 9.

CR – Nov 2017 – L3 – Q2e – 17 Financial instruments: Recognition and measurement Corporate reporting

Advise on the accounting treatment for an investment bond not held to maturity under IFRS 9.

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CR – May 2019 – L3 – Q3 – Financial Instruments (IFRS 9, IAS 32, IAS 39)

Discuss the classification of financial assets under IFRS 9 and evaluate the appropriate accounting treatment of a loan granted to a special purpose entity.

You're reporting an error for "CR – May 2019 – L3 – Q3 – Financial Instruments (IFRS 9, IAS 32, IAS 39)"

FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9

Calculate the amount to be recognized in Asamankese Ltd’s financial statements for a bond purchased at a discount under IFRS 9.

You're reporting an error for "FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9"

FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9

Calculate the amount to be recognized in Asamankese Ltd’s financial statements for a bond purchased at a discount under IFRS 9.

You're reporting an error for "FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9"

CR – Nov 2017 – L3 – Q2e – 17 Financial instruments: Recognition and measurement Corporate reporting

Advise on the accounting treatment for an investment bond not held to maturity under IFRS 9.

You're reporting an error for "CR – Nov 2017 – L3 – Q2e – 17 Financial instruments: Recognition and measurement Corporate reporting"

CR – May 2019 – L3 – Q3 – Financial Instruments (IFRS 9, IAS 32, IAS 39)

Discuss the classification of financial assets under IFRS 9 and evaluate the appropriate accounting treatment of a loan granted to a special purpose entity.

You're reporting an error for "CR – May 2019 – L3 – Q3 – Financial Instruments (IFRS 9, IAS 32, IAS 39)"

FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9

Calculate the amount to be recognized in Asamankese Ltd’s financial statements for a bond purchased at a discount under IFRS 9.

You're reporting an error for "FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9"

FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9

Calculate the amount to be recognized in Asamankese Ltd’s financial statements for a bond purchased at a discount under IFRS 9.

You're reporting an error for "FR – May 2020 – L2 – Q2c – Bond Recognition under IFRS 9"

CR – Nov 2017 – L3 – Q2e – 17 Financial instruments: Recognition and measurement Corporate reporting

Advise on the accounting treatment for an investment bond not held to maturity under IFRS 9.

You're reporting an error for "CR – Nov 2017 – L3 – Q2e – 17 Financial instruments: Recognition and measurement Corporate reporting"

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