You have been approached by the Directors of Auta Bhd to advise them on the requirements of MFRS 9 Financial Instrument.

When reviewing the various items in the Statements of Financial Position as at 31 March 2022, the Directors noted that there exist financial assets that include debt instruments and equity instruments.

Required:

1. Explain to the directors how the debt and equity instruments are to be classified and subsequently measured based on MFRS 9. You are required to state the conditions to be satisfied for any measurement approach that shall be applied.

(9 marks)

2. You have been further asked by the Directors of Auto Bhd to advise them on the appropriate accounting treatment in relation to a financing arrangement entered by Auto Bhd during the year ended 31 March 2022.

You are provided with the following details:

1. On 1 April 2021, Auta Bhd borrowed RM160 million.
2. Interest on the borrowing is payable one (1) year in arrears at a rate of 5% per annum, on 31 March of each.
3. The principal sum, together with any interest accrued then, is repayable on 31 March 2026.
4. The lenders have an option to receive equity share in Auta Bhd 31 March 2026 as alternative to receiving repayment of the principal amount.
5. If the option was not available, the lenders would have required Auta Bhd to pay annual interest at a rate 8% per annum.

(20 marks)