TUTORIAL $5($UNSEEN$)$

Ikhwezi Ltd issued $1,00010\%$ R$100$ debentures on $1$ April $2016.$ The debentures were issued at their face value.Transaction costs amounted to R$1,500.$ The debentures will redeemed at a premium of $5\%$ on $31$ March $2022.$ Interest on the debentures is payable annually in arears on $31$ March each year.

ABC Ltd measures their debentures on the amortised cost model. The effective interest rate on the debentures is $10\mathrm{.}987\%$

Required

Prepare the journal entries necessary to account for the debentures in the financial records of Ikhwezi Ltd for the financial years ended $31$ December $2016$ and $31$ December $2017$ under the following conditions:

A$.$ Ikhwezi Ltd capitalizes all accrued interest on the debentures directly to the debentures liability account.

B$.$ lkhwezi Ltd only capitalizes accrued interest on the debentures to the debentures liability account at each interest payment date $($i$.$e$.$ company maintains a separate accrued interest account$).$

Basic Financial Instruments