New Ltd made an investment of 840,000 in a debt instrument, which was issued at par,...

 

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New Ltd made an investment of £840,000 in a debt instrument, which was issued at par, on 1 January 2017. The debt instrument has a term of five years and a coupon rate of interest of 6.5%. Transaction costs amounted to £11,000. The effective rate of interest is 6.1875%. The debt instrument meets the criteria to be measured at amortised cost. Required • Explain how transaction costs are to be treated under IFRS 9 for this type of investments. • Show the opening and closing balances of this investment on the balance sheet of New Ltd for the entire period of the investment. Show the amounts that will influence the movements in the value of this investment of New Ltd for the entire period of the investment. • Prepare the journal entries for this transaction for the year ended 31 December 2017. New Ltd made an investment of £840,000 in a debt instrument, which was issued at par, on 1 January 2017. The debt instrument has a term of five years and a coupon rate of interest of 6.5%. Transaction costs amounted to £11,000. The effective rate of interest is 6.1875%. The debt instrument meets the criteria to be measured at amortised cost. Required • Explain how transaction costs are to be treated under IFRS 9 for this type of investments. • Show the opening and closing balances of this investment on the balance sheet of New Ltd for the entire period of the investment. Show the amounts that will influence the movements in the value of this investment of New Ltd for the entire period of the investment. • Prepare the journal entries for this transaction for the year ended 31 December 2017.

Answer rating: 100% (QA)

Answer 1 Transaction costs are to be treated as an upfront cost and are to be deducted from the ... View the full answer