Skyscraper Property (SP) is progressively building residential and commercial properties. After operating for 10 years, now the company enjoys the remarkable performance. The top management team is actively taking steps to ensure the company continuously grows. The corporate strategic planning team is given tasks to examine potential projects and opportunities that may help strengthen the company position. Meanwhile, the financial team is given tasks on financial planning and investment and the operational team is instructed to analyse options that company should take which in return help the operations of the company go smoothly. Below are snapshots of activities that have been taken by the teams.

PART A: Financial Assets

The senior accountant of SP recommends to the board of directors to build an investment portfolio to meet the long-term financial goals through financial assets investments. The budget allocated for the financial assets investment is approximately RM3,500,000. The senior accountant elaborated to the board of directors that savings account can offer easy access and security of guaranteed capital, however returns can be modest and thus, invest in the shares or bonds can provide stronger returns over the long-term albeit at a higher level of risk. Based on the senior accountants advised on 1 January 2018, SP purchased bonds at 10% stated rate with a maturity value of RM900,000 for RM972,270. The bonds provide the bondholders with a 8% yield. The bonds are dated 1 January 2018 and mature 1 January 2023 with interest receivable 31 December each year. The company classified this debt investment as held for collection and selling (HFCS).

The excess balance from the financial assets investment budget SP invested in non-trading equity investment. On 10 February 2018, SP purchased 100,000 ordinary shares of Sri Pagi Bhd for RM24.00 per share (including transaction cost). On 30 December 2018, SP receives a cash dividend of RM60,000 on its investment.

One of the directors was concerned about the nature and extends of risks arising from financial instruments. The director seeks explanation from the senior accountant on the disclosure requirements of the risks that may arise from financial instruments and how they have been managed.

CASE INSTRUCTIONS:

1. Define equity investments and debt investments and explain which investment is better for the firm in the long-run.

2. Prepare the journal entry at the date of the bonds purchase.

3. Prepare a bond amortization schedule through 2022. Round up your answers.

4. Prepare the journal entry to record the interest received and the amortization for 2019.

5. Prepare the maturity journal entry for the bonds at the date of maturity.

6. Prepare the journal entries for the non-trading equity investment.
7. As the senior accountant of SP explains the disclosure requirements of three (3) types of risks that may arise from financial instruments as prescribed in MFRS 7 Financial Instruments: Disclosures