Page 419 - F2 Integrated Workbook STUDENT 2019

Answers

Example 3.11 continued

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.

In the year ended 31 December 20X3, interest income of $8,219 will be
recognised in profit or loss and a revaluation loss of $1,259 will be
recognised in other comprehensive income.

Note that the table above works towards the redemption value of
$105,960, rather than including the redemption value within the cash
received in the final year.

(c) The bond would be classified as fair value through profit or loss.
The asset is initially recognised at its fair value of $95,000. The transaction
costs of $2,000 would be expensed to profit or loss.
In the year ended 31 December 20X1 interest income of $5,000 ($100,000
× 5%) would be recognised in profit or loss. The asset would be revalued
to $110,000 with a gain of $15,000 ($110,000 – $95,000) recognised in
profit or loss.
On 1 January 20X2 the cash proceeds of $110,000 would be recognised
and the financial asset would be derecognised, with nil profit on disposal.

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