Page 183 - SBR Integrated Workbook STUDENT S18-J19
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Financial instruments
Example 10
FVOCI
On 1 January 20X1, Korma purchased a debt instrument for its nominal value
of $5 million. The transaction was at fair value. The entity’s business model is
to hold financial assets to collect the contractual cash flows but also sell
financial assets if investments with higher returns become available. Interest
is received at a rate of 4% annually in arrears. The effective rate of interest is
10%.
On 31 December 20X1, the fair value of the debt instrument was $4.5 million.
There has not been a significant increase in credit risk since 1 January 20X1,
and 12-month expected credit losses are $0.3 million.
Discuss the accounting treatment of the above in the financial
statements for the year ended 31 December 20X1.
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