Assignment Questions

1.

(a) What provisions are made for the modification of a note (non-current liability) under the relevant IFRS?

(b) Steeple Corporation is having financial difficulty and therefore has asked National Bank to restructure its $3 million note outstanding. The present note has 3 years remaining and pays a current rate of interest of 10%. The present market rate for a loan of this nature is 12%. The note was issued at its face value.

Instructions:

Below are two independent situations. Prepare the journal entry that Steeple would make for each of these restructurings.

(a) National Bank agrees to take an equity interest in Steeple by accepting ordinary shares valued at $2,200,000 in exchange for relinquishment its claim on this note. The ordinary shares have a par value of $1,000,000.

(b) National Bank agrees to accept land in exchange for relinquishing its claim on this note. The land has a book value of $1,950,000 and a fair value of $2,400,000.

2. Use the financial statements presented below on ABC Ltd. to answer the questions.

(a) Why do companies like ABC Ltd. purchase its own shares? (State three reasons)

(b) Calculate the ratio of debt to assets for 2011 and 2012, and discuss the implications of the change.