Joplin Limited invested £1,000 in a debt instrument (issued at par) on 1 January 2018. The term of the debt is five years and the coupon rate of interest attached to the instrument is 6%. Upon redemption, Joplin Limited will receive the initial £1,000 investment back plus a bonus premium of £250. The effective rate of interest is 10.1%. 

The fair value of the instrument on 31 December 2018 was £1,100. 

Requirement 

Show how the investment should be measured and recognised in Joplin Limited’s 2018 financial statements assuming the investment: 

(i) Passes the business model and cash flow characteristics model tests and there is no designation of the investment as fair value through profit or loss; 

(ii) Does not pass the business model or cash flow characteristics model tests.