(a) International standard IFRS9 (which must be applied in accounting periods that begin on or after 1 January 2018) classifies financial assets into three categories.

Identify and explain each of these categories. Also explain the way in which each category of financial asset should be measured subsequent to initial recognition.

(b) On 1 January 2018, a company which prepares financial statements to 30 June each year buys £400,000 of 5% loan notes for £411, 225. Interest will be received half yearly on 30 June and 31 December and the loan notes will be repaid at a premium of 10% on 31 December 2020. The effective rate of interest is 3.5% per half year.

Calculate the amount of interest income that should be recognised in the company's financial statements for each of the years to 30 June 2018, 2019, 2020 and 2021. Also calculate the amount at which the loan notes should be shown in the statement of financial position at the end of each of these years.