Each of the following bond has contractual cash flows that meet the SPPI (solely payments of principal
Question:
Each of the following bond has contractual cash flows that meet the SPPI (solely payments of principal and interest) test. Determine the business model.
(a) The entity invests surplus cash in short term bond investments and expects to use the cash only when long term capital expenditure arises.
(b) The entity invests surplus cash in short term bond investments and expects to sell the investments to meet daily liquidity needs.
(c) A bond portfolio is managed, and performance evaluated based on the interest and capital gains.
(d) A bank’s business is to originate loans and manage the interest rate risk from loans by using derivatives such as interest rate swaps. The bank does the credit evaluation in providing loans and follows up with borrowers to collect interest.
Step by Step Answer:
Advanced Financial Accounting An IFRS Standards Approach
ISBN: 9781285428765
4th Edition
Authors: Pearl Tan, Chu Yeong Lim, Ee Wen Kuah