On 1 January 2008, an entity bought EUR 200,000 of 6 per cent loan stock for EUR
Question:
On 1 January 2008, an entity bought EUR 200,000 of 6 per cent loan stock for EUR 187,860. Interest is receivable on 31 December each year and the stock will be redeemed at par on 31 December 2012. The company intends to hold the stock until maturity and calculates the effective interest rate to be 7.5 per cent per annum. Financial statements are prepared on 31 December each year.
(a) State the amount at which this loan stock should be measured on 1 January 2008.
(b) Calculate the amount at which the loan stock should be measured on 31 December 2008, 2009, 2010, 2011 and 2012.
(c) Show that the effective rate of 7.5 per cent ‘exactly discounts estimated future cash receipts to the initial carrying amount of the asset’ as required by IAS 39.
Step by Step Answer:
Advanced Financial Accounting An International Approach
ISBN: 9780273712749
1st Edition
Authors: Jagdish Kothari, Elisabetta Barone