Question
On 1 January 2018, BMB Ltd purchases a debt instrument with a 5-year term for its fair value of $1,800 million (including transaction costs). The
On 1 January 2018, BMB Ltd purchases a debt instrument with a 5-year term for its fair value of $1,800 million (including transaction costs). The instrument has a principal amount of $2,200 million (the amount payable on redemption) and carries a fixed interest rate of 5.5% paid annually in arrears on 31 December. The annual cash interest income is thus $121 million ($2,200 million x 5.5% rounded to nearest million). The effective interest rate is 10.33%. The debt instrument is classified as subsequently measured at amortized cost.
Required:
Prepare amortized cost table.
Prepare journal entries in the books of BMB Ltd for the year from 31 December 2020 to derecognition of the financial asset (i.e., 31 December 2022).
AMORTISED COST TABLE (IN $MILLION)
Year | Amortized cost opening balance | Interest income 10.33% of opening balance | Interest received 5.5%*$2.2m | Amortized cost closing balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started