DG acquired 500,000 shares in HJ, a listed entity, for $3.50 per share on 28 May 2009. The costs associated with the purchase were $15 000 and were included in the cost of the investment. The directors plan to realize this investment before the end of 2009. The investment was designated on acquisition as held for trading. There has been no further adjustment made to the investment since the date of purchase. The shares were trading at $3.65 each on 30 June 2009.
Financial Instrument (b)
DG purchased a bond with a par value of $5 million on 1 July 2008. The bond carries a 5% coupon, payable annually in arrears and is redeemable on 30 June 2013 at $5.8 million. DG fully intends to hold the bond until the redemption date. The bond was purchased at a 10% discount. The effective interest rate on the bond is 10.26%. The interest due for the year was received and credited to investment income in the income statement.
Required:
Explain how financial instruments (a) and (b) should be classified, initially measured and subsequently measured. Prepare any journal entries required to correct the accounting treatment for the year to 30 June 2009.