(i) Coatmin is a government-controlled bank. Coatmin was taken over by the government during the recent financial crisis. At the start of the financial year to 30 November 20X3, Coatmin gave a financial guarantee contract on behalf of one of its subsidiaries, a charitable organization, committing it to repay the principal amount of $60 million if the subsidiary defaulted on any payments due under a loan. The loan related to the financing of the construction of new office premises and has a term of three years. It is being repaid by equal annual instalments of principal with the first payment having been paid. Coatmin has not secured any compensation in return for giving the guarantee, but assessed that it had a fair value of $1.2 million. The guarantee is measured at fair value through profit or loss. The guarantee was given on the basis that it was probable that it would not be called upon. At 30 November 20X4, Coatmin became aware of the fact that the subsidiary was having financial difficulties with the result that it has not paid the second instalment of principal. It has assessed that it is probable the guarantee will now be called. However, just before the signing of the financial statements for the year ended 30 November 20X4, the subsidiary secured a donation which enabled it to make the second repayment before the guarantee was called upon. It is now anticipated that the subsidiary will be able to meet the final payment. Discounting is immaterial and the fair value of the guarantee is higher than the value determined under IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

(ii) Coatmin provides loans to customers and funds the loans by selling bonds in the market. The liability is designated at fair value through profit or loss. The bonds have a fair value increase of $50 million in the year to 30 November 20X4, of which $5 million relates to the reduction in Coatmin’s creditworthiness.

Required:

Discuss, with suitable calculations where necessary, the accounting treatment of the above transactions in the financial statements of Coatmin.