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As per IFRS 9 Financial Instruments, it states that debt investment should be recorded at fair value when a companys business model is fulfilling three
As per IFRS 9 Financial Instruments, it states that debt investment should be recorded at fair value when a companys business model is fulfilling three conditions: I. Holding-of-financial asset. II. Collection of contractual cash flows. III. Selling of financial assets. It also states that debt investment should be recorded on Amortized cost when a companys business model is fulfilling two conditions only: I. Holding-of-financial asset. II. Collection-of-contractual cash flows. In the question, it was clearly mentioned the business model is (holding the bonds for collection of contractual cash flow), which matches the 2nd statement of IFRS 9; therefore, I ignored the fair value assumption. If the business model in the question was (holding the bonds for collection of contractual cash flow and selling), then yes we should take the fair value assumption into consideration. so based on above explanation, the etries on Dec 31, 2019 as mentioned below? Dr. Cash 96,000 Cr. Debt investment 10,928 Interest Revenue 85,072 On January 1, 2018, Ellison Company purchased 12% bonds, having a maturity value of 800,000, for 860,652. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2018, and mature January 1, 2023, with interest receivable December 31 of each year. Ellison's business model is to hold these bonds to collect contractual cash flows. Instructions (1) Prepare a bond amortization schedule through 2019.(2) Prepare any entries necessary at December 31, 2019, using the fair value option, assuming the fair value of the bonds is 840,000
As per IFRS 9 Financial Instruments, it states that debt investment should be recorded at fair value when a companys business model is fulfilling three conditions:
I. Holding-of-financial asset.
II. Collection of contractual cash flows.
III. Selling of financial assets.
It also states that debt investment should be recorded on Amortized cost when a companys business model is fulfilling two conditions only:
I. Holding-of-financial asset.
II. Collection-of-contractual cash flows.
In the question, it was clearly mentioned the business model is (holding the bonds for collection of contractual cash flow), which matches the 2nd statement of IFRS 9; therefore, I ignored the fair value assumption. If the business model in the question was (holding the bonds for collection of contractual cash flow and selling), then yes we should take the fair value assumption into consideration.
so based on above explanation, the etries on Dec 31, 2019 as mentioned below?
Dr. Cash 96,000
Cr. Debt investment 10,928
Interest Revenue 85,072
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