Page 181 - SBR Integrated Workbook STUDENT S18-J19
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Financial instruments
Example 9
Credit impaired financial asset
On 1 January 20X1, Balti purchased a debt instrument for its nominal value of
$4 million also incurring broker fees of $0.1 million. The transaction was at fair
value. The entity’s business model is to hold financial assets to collect the
contractual cash flows. Interest is received at a rate of 5% annually in arrears.
The effective rate of interest is 8%.
On 31 December 20X1, after receipt of the interest, Balti is informed that the
issuer of the debt instrument has gone into administration. The administrator
informs Balti that they will only receive one further receipt from the investment.
This will amount to $2 million and will be paid on 31 December 20X3.
Discuss the accounting treatment of the above in the financial
statements for the year ended 31 December 20X1.
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