Page 176 - SBR Integrated Workbook STUDENT S18-J19

Chapter 12

Example 7

Measuring investments in debt

On 1 January 20X1, Galbraith purchases 1 million $10 5% loan notes for their
nominal value. It also incurs $0.1 million of direct costs on the purchase. The
effective rate of interest is 12%.

The fair value of the investment at 31 December 20X1 is $11.5 million.

Explain how the financial asset would be accounted for in the year
ended 31 December 20X1 if it was measured at:

 Amortised cost

 Fair value through OCI

 Fair value through profit or loss.

4.3 Reclassification: investments in debt

Investments in debt are reclassified (e.g. from FVPL to amortised cost) if the entity
changes its business model for managing financial assets.

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