Forever Lid Forever Lid purchased 12, 5% redeemable debentures for R200 000 on 1 January 2020. Transaction costs of R16 311 were incurred. The debentures are redeemable at R250 000 on 31 December 2022. Forever intends to hold them to collect contractual cash flows i.e classifies them at amortised cost. The fair value on 31 December 2020 was R260 000 and R280 000 on 31 December 2021. The asset was not considered to be credit-impaired at any stage. Ignore any loss allowance. The effective interest rate on this type of debentures is 16%. Source: Kavai, P. 2022.

You are required:  Define a financial liability and briefly discuss the different value bases used in the initial measurement of a financial liability, according to IAS 21. 

Prepare the effective interest rate table to show the interest earned on debentures for the three years. 

Prepare the journal entries to account for the above information for the year ended 31 December 2020.

Answer rating: 100% (QA)

A financial liability is a legally binding commitment to pay money or another financial asset to another party or to trade financial instruments with ... View the full answer