(3) Amortised cost and effective interest rate On 1 January 2016, ABC purchased 1,000 bonds issued by X Limited for $97,327. The The anngal ro to maturiy on these bonds is 3 ears, The per value of eac bod is 100. Explain how the bond asset and related income is recognised over the three years to maturity. coupon on these bonds receivable in arrears is 5%. ABC bond transaction USD Net cash outlow on purchase of bonds Year 0 Cash receipts at 5% cash receipts at 5% Cash receipts at 5% and redemption of bonds Year 1 Year 2 Year 3 5,000 5,000 105,000 EIR ("IRR) 6.00% Impact on financial statements (Journal entries) Income statement Balance sheet Carrying value Dr r D r Cr (Amortised cost) Year 0 Bond asset Cash Year 1 Cash Interest income Bond asset Year 2 Cash Interest income Band asset Year 3 Cash Interest income Bond asset Year 3 Cash Bond asset ober 2017 13