Ellesmere Limited entered into the following transactions during the year ended 31 December 20X3
 (1) Entered into a speculative interest rate option costing N$ 10 000 on 1 January 20X3 to borrow N$ 6 000 000 from AB Bank commencing 31 March 20X5 for 6 months at 4%. The value of the option was N$ 15 250 (2) Purchased 6% debentures in FG Limited on 1 January 20X3 (their issue date for N$ 150 000 as an investment. Ellesmere Limited intends to hold the debentures until their redemption at a premium in 5 years’ time. The effective rate of interest of the bond is 8.0% (3) Purchased 50 000 shares in ST Limited on 1 July for N$ 3.50 each as an investment. The share price for on 31 December 20X3 was N$3.75.
 
 Required
 Show the accounting treatment and relevant extracts from the financial statements for the year ended 31 December 20X3. Ellesmere Limited only designates financial assets at their fair value through profit and loss where this is unavoidable
 PART B
 Broadfield Limited purchased 5% debentures in X Limited on 1 January 20X3 (their issue date) for N$ 100 000. The term of the debentures was 5 years and the maturity value is N$ 130 525. The effective interest on the debentures is 10% and the company has classified them as held to maturity financial asset.
 At the end of 20X4   X Limited went into liquidation. All interest had been paid until that date. On 31 December 20X4 the liquidator of X Limited announce that no further interest would be paid and only 80% of the maturity value would be repaid, on the original repayment date. The market interest rate on similar bonds is 8% on that date.

 

 

Required
(a) What value should the debentures have been stated at just before the impairment became apparent? ( 7 marks) (b)   At what value should the debentures be stated as 31 December 20X4 after the impairment? (1 mark) (c) How will the impairment be reported in the financial statements for the year ended 31 December 20X4 (2 marks)







 

Answer rating: 100% (QA)

PART A 1 Speculative Interest Rate Option The speculative interest rate option should be initially r... View the full answer