ACCOUNTING FOR FINANCIAL INSTRUMENTS(TOTAL: 10 MARKS)

1. Abacus Property Ltd bought shares in Texas Instruments on 15 August 2017 for $87,000. The intent of this investment was to make a gain. On 1 January 2020 the shares had a fair value and were recorded at $101,000. By the end of the year their fair value had fallen to $47,000. Record the appropriate journal entries for the year ending 31 December 2020.

2. Abacus Property Ltd also bought government bonds of the Kingdom of Enchancia for $2,000,333 accounted for using amortised cost on 1 January 2020. Due to uncertainty around royal succession, Abacus estimates that there is a 5% chance of default in the next 12 months which would result in a cash shortfall of $1,800,000 and a 10% chance of cash shortfall of $1,000,000. Record the appropriate journal entries for the year ending 31 December 2020. (3 marks)

3. Following from 2 above, explain how this differs from the measurement of most other accounting values and whether you view this as consistent with the conceptual framework. (5 marks)