Question Four (20 marks) DIFRS 15 specifies that revenue is recognized based on a five-step process that is applied to a company's revenue arrangements (a) Briefly describe the five-step process.(5 marks) (b) Explain how the five-step process reflect application of the definitions of assets and liabilities as per the conceptual framework of accounting?(4 marks) II)On January 1, 2017, FNB issued a convertible bond with a par value of K200,000 in the market for K240.000 cash. The bond are convertible into 24.000 ordinary shares of K1 per share par value. The bond has a 5-year life and has a stated interest rate of 10% payable anually. The market interest rate for a similar non-convertible bond at January 1, 2017. i 8% The liability component of the bond is computed to be K215,972. The following bond amortization schedule is provided for this bond EFFECTIVE INTEREST METHOD 10% BOND DISCOUNTED AT S Date Cash Paid Interest Expense 11/17 215.972 12/31/17 K20,000 K17278 K2.722 213.250 2/31/18 20,000 17.060 210.310 12/31/19 20,000 16.524 3.176 207.134 12/31/20 20.000 16.570 3.430 201704 123121 20,000 16.296 1204 200.000 Required (a) Prepare the journal entry to record the issuance of the convertible London January 1, 2017.(2 marks) (1) Prepare the journal entry relating to interest at the end the var 2018mark) (0) Assume that the bonds were conved on December 31, 2010 at their care amount! Prepare the journal entry to record the conversion on December 31, 2016 marku Assume that the comide bonds were purchased on December 31, 2010. for 222.000! Instead of cONT call the door loss and Prepare ther e marks) End Question Four (20 marks) DIFRS 15 specifies that revenue is recognized based on a five-step process that is applied to a company's revenue arrangements. (a) Briefly describe the five-step process.(5 marks) (6) Explain how the five-step process reflect application of the definitions of assets and liabilities as per the conceptual framework of accounting?(4 marks) II)On January 1, 2017, FNB issued a convertible bond with a par value of K200, 000 in the market for K240,000 cash. The bond are convertible into 24.000 ordinary shares of K1 per share par value. The bond has a 5-year life and has a stated interest rate of 10% payable annually. The market interest rate for a similar non-convertible bond at January 1, 2017, is 8%. The liability component of the bond is computed to be K215, 972. The following bond amortization schedule is provided for this bond EFFECTIVE-INTEREST METHOD 10% BOND DISCOUNTED AT 8% Carrying Amount of Date Cash Paid Interest Expense Premium Amortized Bonds 1/1/17 K215,972 12/31/17 K20,000 K17,278 K2,722 213,250 2/31/18 20,000 17,060 2,940 210,310 12/31/19 20,000 16,824 3,176 207,134 12/31/20 20,000 16,570 3,430 203,704 12/31/21 20,000 16,296 3,704 200,000 Required (a) Prepare the journal entry to record the issuance of the convertible bond on January 1. 2017.(2 marks) (6) Prepare the journal entry relating to interest at the end the year 2018.(2 marks) (c) Assume that the bonds were converted on December 31, 2019 ar their carrying amount. Prepare the journal entry to record the conversion on December 31, 2019. (4 marks) d) Assume that the convertible bonds were repurchased on December 31, 2019, for 222,000 instead of being converted calculate the gain or loss and Prepare the journal entry (4 marks)
