Lambda Ltd issues loan notes of €120,000 on 1 January 2060. Redemption is to take place on equal terms, four years later. The company decides to put aside an equal amount to be invested at 5% which will provide €120,000 on maturity. Tables show that €0.232012 invested annually will produce €1 in four years’ time.

Required: Write a narrative report detailing:

• The annual investment required.
• The accounting treatment for the sinking fund.
• The implications for the company’s financial statements.
• The steps taken each year to ensure compliance with the redemption plan.