1. On January 1 2011, Swann issued three year 5% GH¢300, 000 loans at nominal value with effective interest rate at 5%. The loan note will be redeemed at par.

Market Interest Rates at 31/12/2011 6%

Market Interest Rates at 31/12/2012 4%

The transaction is classified as FVTPL. Explain and illustrate how the loan is accounted for in the financial statements for the three years to 31/12/2013.

2. A company issues 4% loan notes with a nominal value GH¢200, 000 at a discount of 2.5%. The loan will be repayable at a premium of 10% after five years and the effective rate of interest is 7%. Issue cost incurred amounted to GH¢5, 340.

How much will be recorded when the loan notes are issued?

What amounts will be posted to the income statement and statement of financial position for the 5 years.

3. An enterprise issued 1,000,000 GH¢1 4% redeemable shares at par on 1^st April, 2012, which was redeemable on 31^st March, 2016 at a 10% premium. The issue costs were GH¢ 100,000. The constant annual rate of interest is approximately 9.28%. Ignore all tax implications. Calculate the total finance cost and the annual charge to income statement.

4. Everest limited issued GH¢400,000 8% convertible loan stock at par on 1 January, 2010, redeemable at par on 31 December, 2014. The terms of conversion require that each GH¢100 of the loan will be convertible into 50 equity shares of Everest Limited. The market rate of the loan without a conversion option is 12% and interest is payable in arrears on 31 December each year.

The present value of GH¢1 at the discount rates of 8% and 12% are provided below:

Year 8% DCF 12% DCF

1. 0.93 0.89
2. 0.86 0.80
3. 0.79 0.71
4. 0.74 0.64
5. 0.68 0.57

Required:

1. Pass a journal to record the initial recognition of the loan on 1 January, 2010.
2. Prepare extracts of Statement of Income and Statement of Financial Position at the end of 2012.

NB: All calculations should be rounded to the nearest whole number.

5. A strategic investor, NPIT, invests in 10 million equity shares of a listed company, EBAN Construction Limited on 01 July 2011. The price per share is GH¢1 and incurred legal charges of 2% of the value of the investment. NPIT plans to hold the shares for trading in the short term. Share prices during the period are as follows:

31 December 2011 GH¢1.40

31 December 2012 GH¢1.20

The shares were sold on 31 December 2013 at GH¢1.30 per share.

Required:

1. Prepare Journal entries to give effect to the above transactions

Prepare extracts from the income statement and statement of financial position for all the relevant years.

Answer rating: 100% (QA)

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