Financial instruments: Presentation and disclosure 511

CR – Nov 2019 – L3 – Q3b – Financial instruments: Presentation and disclosure 511

Advise on the financial reporting issues arising from the impact of credit risk on debt instruments.

Question

b) Duakwanta is a listed company which manufactures personal computers (PCs). It is preparing its financial statements for the year ended 31 May 2019 and would like to seek advice on the following accounting issue:

During the year, Duakwanta issued a debt finance to the financial markets to fund its expansion plans. This was a very significant debt issue for Duakwanta. After the issue, the market price of each block of debt on the market fell by approximately 10%. The financial press has stated that the reason for the fall is due to an increase in the company’s credit risk, as the market players are worried by the size of the interest payments on Duakwanta’s operating cash flows.

Required:
Advise the directors as to the financial reporting issues arising from the above scenario and explain the appropriate treatment in Duakwanta’s financial statements. (4 marks)

Answer

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Tags: Credit risk, Debt Instruments, IFRS 9
Level: Level 3

Topic: Financial instruments: Presentation and disclosure 511
Series: NOV 2017

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.

Question

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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Amortised Cost, Bonds, Effective Interest Rate, IFRS 9
Level: Level 3

Topic: Financial instruments: Presentation and disclosure 511
Series: NOV 2019

CR – Nov 2019 – L3 – Q3b – Financial instruments: Presentation and disclosure 511

Advise on the financial reporting issues arising from the impact of credit risk on debt instruments.

Question

Required:
Advise the directors as to the financial reporting issues arising from the above scenario and explain the appropriate treatment in Duakwanta’s financial statements. (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Credit risk, Debt Instruments, IFRS 9
Level: Level 3

Topic: Financial instruments: Presentation and disclosure 511
Series: NOV 2017

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.

Question

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

Answer

Find Related Questions by Tags, levels, etc.

Tags: Amortised Cost, Bonds, Effective Interest Rate, IFRS 9
Level: Level 3

Topic: Financial instruments: Presentation and disclosure 511
Series: NOV 2019

Topic: Financial instruments: Presentation and disclosure 511

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CR – Nov 2019 – L3 – Q3b – Financial instruments: Presentation and disclosure 511

Advise on the financial reporting issues arising from the impact of credit risk on debt instruments.

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.

CR – Nov 2019 – L3 – Q3b – Financial instruments: Presentation and disclosure 511

Advise on the financial reporting issues arising from the impact of credit risk on debt instruments.

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.

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Topic: Financial instruments: Presentation and disclosure 511

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CR – Nov 2019 – L3 – Q3b – Financial instruments: Presentation and disclosure 511

Advise on the financial reporting issues arising from the impact of credit risk on debt instruments.

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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.

You're reporting an error for "CR – Nov 2019 – L3 – Q2c – Financial instruments: Presentation and disclosure 511"

CR – Nov 2019 – L3 – Q3b – Financial instruments: Presentation and disclosure 511

Advise on the financial reporting issues arising from the impact of credit risk on debt instruments.

You're reporting an error for "CR – Nov 2019 – L3 – Q3b – Financial instruments: Presentation and disclosure 511"

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.

You're reporting an error for "CR – Nov 2019 – L3 – Q2c – Financial instruments: Presentation and disclosure 511"

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