North Sydney Investment Limited (the Company) is carrying on a business in buying and selling short-term and long-term financial assets. The Company will hold the financial assets to receive the contractual cash flows. When an opportunity arises, the Company will sell the financial assets to realise the profits and then re-invest in other financial assets with a higher return.

On 1 July 2022, the Company purchased $1,000,000 par value of bonds at a 5% discount on the issue. A coupon interest of 6% of the par value is paid annually on 30 June. The maturity date of the bonds is 30 June 2027. Transaction costs of $10,000 were incurred on the purchase of the bonds. The annual internal rate of return on the bonds is 8%.

At 30 June 2023, owing to the increase in market interest rates, the fair value of the bonds decreased to $900,000.

Required

Discuss and calculate how the bonds should be accounted for in the financial statements of Sydney Investment Limited for the year ended 30 June 2023. (5 marks)