Question 1 (a) On 1 January 2016, AFan Bhd purchased 1, 000 units of 15 years a quoted bond of SGear Bhd at the issue price of RM850 per unit. The nominal value of each unit is RM1,000. The bond will be redeemed at its nominal value. For the first 5 years, the interest is set at 8.5% payable annually at the end of each year, thereafter interest payable will be reset to the prevailing market interest rate at an interval of every 5 years. The prevailing market rate for similar class bond at the time of the bond issue is about 9.8%. Transaction costs paid amount to RM20,000. The market interest rate and the market interest price of the bond for each of the five financial years are as follows: Year ended 31 December 2016 Year ended 31 December 2017 Year ended 31 December 2018 Market interest rate 10% 16% 16% Year ended 31 December 2019 5% Year ended 31 December 2020 5% Price per unit RM873.21 RM775.41 RM839,48 RM1,009.52 RM1,000.00 Required: (i) Determine the effective interest rate for the first 5 years. (2 marks) (ii) Assuming AFan Bhd holds the bond for trading with a view to generating profit from short term price fluctuations. Explain how the above instrument will be measured subsequently, in accordance with MFRS 139 Financial Instruments: Recognition and Measurement; and prepare the journal entry to show the journal entry to record the transactions from year ended 31 December 2016 to year ended 31 December 2020. (12 marks) b) In 1 July 2021, Shimer Bhd purchases 100,000 ordinary shares of Z Bhd with intention to hold the investment for the long term and classifies it as available for sale. The directors or Shimer Bhd have been arquing on how to classify the investment in its financial statement in accordance with MFRS 9 Financial Instruments. Required: Advise the directors of Shimer Bhd on the classification in accordance with MFRS 9 Financial Instruments. (4 marks) (c) On 1 January 2016, SRRA Bhd (SRRAB) issued a 3% RM2, 000, 000 five-year convertible bond at par value. The bond interest is payable on 31 December each year. Costs of issuing the bond, which included underwriting fees, totaled RM50,000. The terms of the convertible bond is that the holder of the bond, on redemption date, has the option to convert the bond to equity shares at the rate of 10 shares per RM100 debt. Assuming that the bonds were all converted into equity shares on maturity. The prevailing market interest rate for a five-year bond without conversion option is 5%. The effective rate after the inclusion of transaction cost is 5.568%. The present value of RM1 receivable at the end of each year, based on discount rates of 3% and 5%, are Present Value Factors Period 1 3% 5% 0.9709 0.9524 2 0.9426 0.9070 3 0.9151 0.8638 4 0.8885 0.8227 5 0.8626 0.735