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Financial Instruments Accounting Guide

The document outlines financial instruments and their accounting treatment over specific periods, detailing loans and bonds issued by MASUMBUKO, HONDA, and KALUMANGA. It also discusses the measurement criteria under IFRS 9 for financial assets classified as debt and provides a case study on Abel Ltd's bond purchase, requiring calculations for both amortized cost and fair value through other comprehensive income. The document serves as a guide for reporting and accounting for these financial instruments in financial statements.

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tanzanianakupenda280
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3 views2 pages

Financial Instruments Accounting Guide

The document outlines financial instruments and their accounting treatment over specific periods, detailing loans and bonds issued by MASUMBUKO, HONDA, and KALUMANGA. It also discusses the measurement criteria under IFRS 9 for financial assets classified as debt and provides a case study on Abel Ltd's bond purchase, requiring calculations for both amortized cost and fair value through other comprehensive income. The document serves as a guide for reporting and accounting for these financial instruments in financial statements.

Uploaded by

tanzanianakupenda280
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

FINANCIAL INSTRUMENTS

QUESTION ONE

On 1 January 2011 MASUMBUKO issued a loan note with a TZS50,000 nominal value. It was
issued at a discount of 16% of the nominal value. The costs of issue were TZS2,000. Interest
coupon is 5% payable annually in arrears. The bond must be redeemed on 1 January 2016 at a
premium of TZS4,611. Effective interest rate is 12% p.a.

Required

How will this be reported in the financial statements of James over the period to redemption.

QUESTION TWO

A. HONDA raised finance on 1 January 2011 by the issue of a two-year 2% bond with a nominal
value of TZS10,000. It was issued at a discount of 5% and is redeemable at a premium of
TZS1,075. Effective interest rate is 10%.

B. KALUMANGA raised finance by issuing zero coupon bonds at par on 1 January 2015 with a
nominal value of TZS10,000. The bonds will be redeemed after two years at a premium of
TZS1,449. Effective interest rate is 7%.
Required

For the above financial instruments, illustrate and explain how they would be accounted for.

QUESTION THREE

IFRS 9 Financial Instruments provides guidance for financial assets which are classified as debt
to be measured in one of three ways:

(i) At amortized cost;

(ii) At fair value through other comprehensive income; or

(iii) At fair value through profit or loss.

Required

Outline the conditions required to be met in order to apply each of the measurement.
QUESTION FOUR

On 1 January 2014, Abel Ltd purchased 4,000,000 5% bond for TZS3,800,000, incurring
transaction costs of TZS80,000. Interest is received in arrears and the bond will be redeemed at a
premium of TZS238,400 over the nominal value on 31 December 2016. The effective rate interest
is 8%. The fair values of the bond at 31 December 2014 and 2015 were TZS4,400,000 and
TZS4,160,000 respectively.

Required

i. Calculate the relevant figures for the financial statements for the three years using Amortized

Cost Measurement.

ii. Calculate the relevant figures for the financial statements for the three years using Fair Value

Through Other Comprehensive Income Measurement.

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