On 1 July 2018 Cambridge Ltd issues $6 million in two-year debentures (under a private placement) that pay interest each six months at a coupon rate of 8 per cent per annum, commencing 31 December 2018. At the time of issuing the securities, the market requires a rate of return of 6 per cent per annum. Interest expense is determined using the effective interest rate method. Required: (1) Calculate the following. Round dollar figures to the nearest dollar.

• issue price of the debentures on 1 July 2018 (2 marks)
• effective interest expense for the period ended 31 December 2018 (0.5 marks)
• adjustment to the liability balance for the period ended 31 December 2018 (0.5 marks)

(2) State whether a discount or a premium on issue exists and explain why it has arisen. (1 mark) (3) Explain how this discount or premium on issue is accounted for on 31 December 2018 citing the relevant AASB paragraph reference. (1 mark)