Assignment Impairment of Financial Instrument

Company A on 1 January 2014 issued a bond that required it to pay an annual coupon of 800 in arrears and to repay the principal of 10,000 on 31 December 2023. By 2019, Company A was in significant financial difficulties and was unable to pay the coupon due on 31 December 2019. On 1 January 2020, Company X estimates that the holder could expect to receive a single payment of 4,000 at the end of 2021. It acquires the bond at an arm's length price of 3,000. Company X determines that the debt instrument is credit-impaired on initial recognition, because of evidence of significant financial difficulty of Company A and because the debt instrument was purchased at a deep discount.

Requirements :

a. Calculate the EIR using the estimated cash flows of the instrument

b. Calculate the interest income would be recognised on the instrument during 2020

c. Determine the carrying amount at the end of the year 2020

d. Assumed that at the end of the year based on reasonable and supportable evidence, the

cash flow expected to be received on the instrument had increase to 4,250 (still to be

received at the end of 2021), determine the carrying amount and impairment gain/loss.

e. Assumed that at the end of the year based on reasonable and supportable evidence, the

cash flow expected to be received on the instrument had increase to 3,500 (still to be

received at the end of 2021), determine the carrying amount and impairment gain/loss.