Page 135 - FR Integrated Workbook 2018-19

Financial assets and financial liabilities

Example 5 cont.

In the year ended 31 December 20X2, interest income $7,981 will be
recognised in profit or loss and the asset will be held at $101,741 on the
statement of financial position.
In the year ended 31 December 20X3, interest income of $8,219 will be
recognised in profit or loss.
(b) The business model is to hold the asset until redemption, but sales may
be made to invest in other assets will higher returns. Therefore, the debt
instrument will be measured at fair value through other comprehensive
income.

The asset is initially recognised at its fair value plus transaction costs of
$97,000 ($95,000 + $2,000).
Interest income will be recognised in profit or loss using the effective
rate of interest, in exactly the same way as for amortised cost.
At the end of each year the asset must be revalued to fair value. The
gain will be recorded in other comprehensive income.

Interest Gain/ Fair
b/f per (a) Received Net loss value

$ $ $ $ $ $
20X1 97,000 7,760 (5,000) 99,760 10,240 110,000

20X2 110,000 7,981 (5,000) 112,981 (8,981) 104,000
20X3 104,000 8,219 (5,000) 107,219 (1,259) 105,960

Note that the amounts recognised in profit or loss as interest income
must be the same as if the asset was simply held at amortised cost.
Therefore, the interest income figures are the same as in part (a).
In the year ended 31 December 20X1, interest income of $7,760 will be
recognised in profit or loss and a revaluation gain of $10,240 will be
recognised in other comprehensive income. The asset will be held at
$110,000 on the statement of financial position.

In the year ended 31 December 20X2, interest income of $7,981 will be
recognised in profit or loss and a revaluation loss of $8,981 will be
recognised in other comprehensive income. The asset will be held at
$104,000 on the statement of financial position.

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