Victory Ltd (VL) is a highly successful Singapore-based company which is looking to make better use of its excess funds as well as improve its capital structure. It had the following transactions during the financial year ended 31 December 20x4.

On 1 January 20x4, VL bought 150,000 ordinary shares in Winners Ltd (WL) at $2.80 per share while incurring brokerage fees of 1% on total amount invested. It considered the business of WL to be complementary to its own and would like to stay invested in the company for the long haul. Hence, VL had elected to measure the investment at fair value through other comprehensive income.

Looking for a regular source of income, VL also purchased 250,000 5% bonds on 1 July 20x4 at $1.75 each. The bonds were issued by Successful Ltd (SFL) on the same day and had a nominal value of $2 per bond. Coupons are payable on 30 June annually with the first payment to be made on 30 June 20x5. Transaction costs of $2,500 were incurred on the bond purchase. VL intends to hold the bonds till their maturity on 30 June 20x8 to receive the coupons as well as the nominal amount. The annual internal rate of return on the bonds, before and after taking into account transaction costs, is 8.84526% and 8.67787%.

The market prices for the abovementioned financial instruments as at 31 December 20x4 were as follows:

WL Shares 2.60

SFL Bonds 1.90

Required:

Explain clearly the classifications of the investment in WL and investment in SFL in VLs books under FRS 109 Financial Instruments and illustrate how the above transactions should be accounted for by preparing the necessary journal entries (journal narratives NOT required) for the financial year ending 31 December 20x4. Assume no impairment required for the investments. Please show all workings clearly and date all journal entries to get full credit.