Q6 Financial Instruments 8 Points Q6.1 3 Points Milk Ltd issues 50 000 $1 redeemable convertible notes to Lid Ltd. The notes pay interest at 3% p.a. Each note converts at any time at the option of Lid Ltd into one ordinary share. The notes are redeemable at the option of Lid Ltd for cash after 5 years. Market rates for similar notes without the conversion option are 4% p.a. Required: Explain whether Milk Ltd has a financial asset, financial liability or equity instrument resulting from the situation above and calculate the value of the financial instrument(s) that you identify. Q6.2 3 Points Lid Ltd made a 2-year loan of $50,000 at 6% interest rate to Carrot Ltd on 1 July 2022. Interest is due at the end of each financial year, and principal is due on maturity. The financial asset is classified by Lid Ltd as subsequently measured at amortised cost. Lid Ltd applies the general approach to impairment of loan receivable and has classified its loan at stage 1 from inception to maturity. The implicit interest rate is 5%. Lid estimated a 12- month expected credit loss of $5,000 Lid Ltd has prepared the following amortised cost table and journal entries for the 2-year period. Date 1 July 2022 30 June 2023 30 June 2024 Opening Balance Interest Revenue Interest Received Closing Balance 50929.70 50929.70 3000 2546.49 50476.19 50476.19 3000 2523.81 50000 Date 1/7/2022 CR Accounts Loan receivable Cash DR 50929.7 50529.7 30/6/2023 453.51 Cash Loan receivable 453.51 5000 Impairment loss Loss allowance 5000 30/6/2024 476.19 Cash Loan receivable 476.19 Impairment loss Loss allowance 5000 5000 Required: Identify and explain two errors that have been made in the amortised cost table and the journal entries. Q6.3 2 Points On 1 July 2021, Silver Ltd purchased 10 000 exchange traded call options in GoodPay Ltd at a premium of $3 per option. The options have an exercise price of $20 and expire on 30 April 2022. The options have a fair value to the holder of $4 each on 30 December 2021. Required: Prepare the journal entries that Silver Ltd should make to account for the financial instrument on 1 July 2021 and on 30 December 2021