On 1 January 2020, Rambutan Bhd issued RM10,000,000 million of its 5-year, 5% bond for RM9,179,960.51. The bonds were priced to yield 7%. Interest is payable annually in arrears. Rambutan Bhd elected the option to report these bonds at their fair value on the basis that these bonds are used to fund a group of assets that are measured at fair value. On 31 December 2020, the market interest rate for bonds of similar risk and maturity was RM9,520,500 as determined by their market value over-the-counter market. Rambutan Bhd determined that RM200,000 of the increase in fair value was due to a decline in general interest rates.

Required:

(i) Discuss the reason and implication of electing the option to report the issuance of bonds at their fair value.

(ii) Prepare the journal entry to record interest expense on 31 December 2020,

(iii) Prepare the journal entry to adjust the bonds to their fair value for presentation in the statement of financial position as of 31 December 2020. Explain your answers with relevant workings,

Answer rating: 100% (QA)

Loan Amout facevalue Rm lo 00u o00 mllion with Cost g 179 960 51 withinteret rate i esu... View the full answer