An entity purchases EUR 20m, 10 per cent five-year government bonds on 1 January 2009 with semi-annual interest payable on 30 June and 31 December for EUR 21.6m that results in a premium of EUR 1.6m. The entity classifies the bonds as held-to-maturity investments at amortised cost. The amortisation of the bonds to maturity using the effective interest method is shown below: 

On 1 July 2010, the entity sells the bonds at its fair value of EUR 21.2m to a third party with an agreement to repurchase the bonds on 1 July 2011 for EUR 213m. 

(a) Does this sale qualify for derecognition? If so, how would you account for it? 

(b) Suppose now that the repurchase contract is to be settled net in cash and that the fair value of the asset at the date of repurchase amounts to EUR 21.31m (i.e. the entity will pay an additional EUR 10,000 to the bank). How would your answer to question (a) change?

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1 January 2009 1 July 2009 1 January 2010 1 July 2010 1 January 2011 1 July 2011 1 January 2012 1 July 2012 1 January 2013 1 July 2013 31 December 2013 Cash received 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 10,000,000 Interest income @ 4.0130325% 866,815 861,470 855,911 850,129 844,114 837,859 831,352 824,584 817,544 810,222 8,400,000 Carrying amount 21,600,000 21,466,815 21,328,285 21,184,196 21,034,325 20,878,439 20,716,298 20,547,650 20,372,233 20,189,778 20,000,000