Anoy Berhad made an investment in a financial instrument on 1 January 2019 at its nominal value of RM200,000.  The instrument carries a fixed coupon interest rate of 7% which is receivable annually in arrears.  The instrument will be redeemed for RM226,500 on 31 December 2022.  Transaction costs of RM10,000 were paid on acquisition.  The effective interest rate applicable to this instrument has been calculated at approximately 8%.  Anoy intends to hold this investment until its redemption date.

 

Required:

(a) Explain why the investment is a financial asset for Anoy Berhad but is a financial liability for the borrower.

(b) Explain how this investment should be classified and measured in the financial statements of Anoy Berhad, in accordance with MFRS9.  Prepare the journal entry to record the initial measurement of this investment on 1 January 2019.

(c) Calculate the amount of interest income that should be recognized and the carrying amount of the investment in the financial statements for each of the years to 31 December 2019, 2020, 2021 and 2022.  Show the amounts that would be included in Anoy’s financial statements for the year to 31 December 2019 in respect of this financial instrument as part of the extract.