On 1 January 2017, Company ABC issued bonds with a nominal value of 3 million DOLLARS for redemption at a premium on 31 December 2021. The notional interest rate of the bonds is 4% with an effective interest rate of 7%. Aces business model objective for managing instrument is to collect contractual cash flows and the instrument has basic loan features of principal and interest cash flows.

Company ABC reports on a yearly basis. On 1 September 2019, its business model objective for the investment changes to managing the instrument for fair value changes rather than collecting contractual cash flows.

The market price of the bonds in years 2017 to 2021 is shown below:

	USD
31 December 2017	3 million
31 December 2018	3.2 million
31 December 2019	3.48 million
31 December 2020	3.45 million
31 December 2021	3.69 million

Required:

1. Prepare an amortisation schedule to show the carrying amount of the instrument under the amortised cost model.
2. When the business model is changed on 1 September 2019, explain how Company ABC shall apply the reclassification standard of IFRS 9.
3. Show the journal entries in the books of Company ABC for the years 2017, 2020 and 2021.
4. Show extracts of the Statement of Profit or Loss for the years ended 31 December 2017 and 2020.
5. Assume that the bonds eventually default at the end of year 2020 and the actual loss amounts to USD 1 million. Under IFRS 9, if on initial recognition the bond has a low credit risk, 12-month expected credit losses are recognized. At the end of the year 2017, there has been no significant deterioration in the credit quality, or the bonds are still considered to be of low credit risk. The probability of default within the next 12-month period is 1% and consistent throughout the five-year period. Explain how to account for this situation in the books of Company ABC in the year 2017.