The company bought debentures with a face value of $145,000 and paid $125,000 to the issuer plus a purchase commission of $2,000. The debentures have a life of 4 years and will pay a coupon of 6.53% per year at the end of each year. These instruments have been classified as subsequently measured at fair value through profit and loss. By the end of the 4th year, Australian interest rates have moved to 12%. The fair value amounts for this debenture at the end of each year are:

Year Fair/ Value

1/ $133,000

2/ $147,000

3/ $123,000

4/ $154,469

Required:

1.Calculate the effective rate of return (the market rate of interest) for these debentures.

2.Prepare a table which shows the movements relating to these debentures over their life. Please remember, these debentures are not held at amortized cost.

3.Prepare journal entries for all transactions relating to these debentures.