FIN Company invests in a number of privately issued bonds. On January 3, 2020, FIN Company...

 

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FIN Company invests in a number of privately issued bonds. On January 3, 2020, FIN Company invested in a 7% bond issued by S Company at par for $600,000 which would mature on December it 31, 2024. In the worst case scenario of a default event, S Company is not expected to be able to pay interest in 2023 and 2024 and the principal payment due on December 31, 2024. However, existing cash reserves are sufficient to pay interest due in 2020 , 2021, and 2022. On January 3, 2020, the credit quality of S Company was good and the probability of default during the first 12 months to December 31, 2020, was 0.5%. The probability remained stable throughout the period. Ignore discounting. What stage of impairment loss would best describe the state of S Company bonds during 2020? What is the loss allowance at December 31, 2020? FIN Company invests in a number of privately issued bonds. On January 3, 2020, FIN Company invested in a 7% bond issued by S Company at par for $600,000 which would mature on December it 31, 2024. In the worst case scenario of a default event, S Company is not expected to be able to pay interest in 2023 and 2024 and the principal payment due on December 31, 2024. However, existing cash reserves are sufficient to pay interest due in 2020 , 2021, and 2022. On January 3, 2020, the credit quality of S Company was good and the probability of default during the first 12 months to December 31, 2020, was 0.5%. The probability remained stable throughout the period. Ignore discounting. What stage of impairment loss would best describe the state of S Company bonds during 2020? What is the loss allowance at December 31, 2020?

Answer rating: 100% (QA)

1 IFRS9 has three impairment stages based on expected credit loss ECL Stag... View the full answer