- 6 Marks
CR – May 2016 – L3 – Q4a – Financial Instruments (IFRS 9, IAS 32, IAS 39)
Discuss how the events surrounding the waiver of bond payments by LALUPON Plc should be accounted for in its financial statements.
Question
LALUPON Plc was incorporated on January 3, 2010 in Nigeria with ₦250m authorized and fully paid share capital. As part of its initial capital, the company issued a 10% debenture bond. It also agreed to the appointment of a trust manager who was charged with the responsibility that the bond indenture is faithfully kept. The indentures, among others, provided for:
- Bond amount: ₦100m (2020)
- Yearly payment of interest and principal due.
- Crystallization of the whole loan (Principal, interest, and all incidental expenses) on default.
- Discretionary waiver of any term of the bond only at the instance of the bond holder.
On January 4, 2013, the Trust manager informed the bond holder of a default in servicing the loan. After a meeting of all stakeholders, the bond holder agreed to a waiver postponing the payment until December 2014.
On June 3, 2014, due to a downturn in business activities, LALUPON Plc felt a further waiver was required. After another meeting, the bond holder consented to a waiver until December 2015, when LALUPON Plc was confident it could make the payment.
On December 31, 2014, LALUPON Plc classified the loan as long-term debt in its statement of financial position on the basis that the loan was not in default at the end of their reporting period, as the bond holder had issued waivers and had not sought redemption.
Required:
Discuss how the above events should be accounted for in the financial statements of LALUPON Plc.
Find Related Questions by Tags, levels, etc.
- Tags: Accounting for Waivers, Debenture Bonds, Default, Financial Liabilities, Long-term Debt, Waivers
- Level: Level 3