(a) What is the effective interest method for accounting for debt? Discuss the merits and demerits of this method. Your answer to this part of the question should not be more than 150 words. (5 marks)

(b) Explain the reason why accounting for equity or liability has become more complex? Your answer to this part of the question should not be more than 60 words. (2 marks)

(c) What is substance over form and off balance sheet finance? Discuss the concept of substance over form in determining how we account for capital instruments having characteristics of both debt and equity. Your answer to this part of the question should not be more than 180 words. (6 marks)

(d) Meow Plc has two investments. One, an investment in listed shares, is available for sale as a financial asset. The current market value is 405,000 but the shares were bought for 675,000. The other is an investment in a three year bond with an amortised cost of 450,000 with a stated and effective interest rate of 7% (current market rates are 10%). After two years Meow Plc is not expecting to receive the last years interest and expects to receive only 2/3 of the principal.

Required

What is impairment? What impairment should be recorded in the accounts of Meow Plc for the listed shares and the three year bond? (7 marks)