On 1 January 20x1, DDD Ltd (DDD) acquired bonds with a nominal value of $100,000 issued by EEE Ltd (EEE). The bonds have a coupon rate of 6% and mature in 3 years. Coupon interest is payable on the 31 December of each year, with the first payment being made on 31 December 20x1. The effective interest rate at the time of acquisition was 5%. On 31 December 20x1, the fair value of the bond was $102,000. Both DDD and EEE adopt the Singapore FRSs and have December 31 year-ends. When presenting your answers, please round all answers to the nearest dollar.

Note: For Q2(a), assume at the bonds are held until maturity.

For Q2(b), assume there was an early redemption of the bonds on 1 April 20x2 by EEE at a price of $103,000 (inclusive of pro-rated coupon interest payment). Assume also that the entire change in the FV of the liability was attributable solely to the change in market risk.

Required:

a) Apply FRS 109 Financial Instruments and illustrate the accounting of these bonds by preparing necessary journal entries (journal narrative not required) in EEEs books for the years from inception until settlement if the bonds are classified as measured at amortised cost.

b) Apply FRS 109 Financial Instruments and illustrate the accounting of these bonds by preparing necessary journal entries (journal narrative not required) in EEEs books for the years from inception until disposal if the bonds had been designated at inception as measured at fair value through profit or loss. Assume there was an early redemption of the bonds by EEE on 1 April 20x2 at a price of $103,000. Assume also that the entire change in the FV of the liability was attributable solely to the change in market risk