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ACCA SBR Kaplan Practice Kit Insights

This document contains 4 practice questions from an ACCA study book on accounting for financial instruments under IFRS 9, IFRS 7, and IAS 32. The questions cover topics such as: how bonds should be accounted for depending on the business model of the entity holding them; classification of financial assets; fair value accounting of bonds; and accounting for interest-free loans. The reader is provided with background information for each case study and required to explain or illustrate the appropriate accounting treatment.

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574 views1 page

ACCA SBR Kaplan Practice Kit Insights

This document contains 4 practice questions from an ACCA study book on accounting for financial instruments under IFRS 9, IFRS 7, and IAS 32. The questions cover topics such as: how bonds should be accounted for depending on the business model of the entity holding them; classification of financial assets; fair value accounting of bonds; and accounting for interest-free loans. The reader is provided with background information for each case study and required to explain or illustrate the appropriate accounting treatment.

Uploaded by

.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
  • Maple (Gov’t Loan): Describes the government loan received by Maple and the fair value measurement implications.
  • Bean (Basic): Explains how to account for bond purchases using the amortised cost method.
  • Tokyo (Classification): Classifies bonds bought at a discount and outlines the interest computations and accounting impact.

PRACTICE KIT

CFAP 1: ADVANCED ACCOUNTING AND FINANCIAL REPORTING


CHAPTER 21: IFRS 09, IFRS 07, IAS 32: FINANCIAL

Required:
Illustrate and explain how these financial instruments should be accounted for by each company.

[ACCA SBR Kaplan Book]


19. Bean (Basic)
Bean regularly invests in assets that are measured at fair value through profit or loss. These asset purchases
are funded by issuing bonds. If the bonds were not remeasured to fair value, an accounting mismatch would
arise. Therefore, Bean designates the bonds to be measured at fair value through profit or loss.
The fair value of the bonds fell by $30m during the reporting period, of which $10m related to Bean's credit
worthiness.

Required:
How should the bonds be accounted for?

[ACCA SBR Kaplan Book]


20. Paloma (Classification)
Paloma purchased a new financial asset on 31 December 20X3. The asset is a bond that will mature in three
years. Paloma buys debt investments with the intention of holding them to maturity although has, on occasion,
sold some investments if cash flow deteriorated beyond acceptable levels. The bond pays a market rate of
interest. The Finance Director is unsure as to whether this financial asset can be measured at amortised cost.

Required:
Advise the Finance Director on how the bond will be measured.

[ACCA SBR Kaplan Book]


21. Tokyo (Classification)
On 1 January 20X1, Tokyo bought a $100,000 5% bond for $95,000, incurring issue costs of $2,000. Interest is
received in arrears. The bond will be redeemed at a premium of $5,960 over nominal value on 31 December
20X3. The effective rate of interest is 8%.
The fair value of the bond was as follows:
31/12/X1 $110,000
31/12/X2 $104,000

Required:
Explain, with calculations, how the bond will have been accounted for over all relevant years if:
(a) Tokyo's business model is to hold bonds until the redemption date.
(b) Tokyo's business model is to hold bonds until redemption but also to sell them if investments with higher
returns become available.
(c) Tokyo's business model is to trade bonds in the short-term. Assume that Tokyo sold this bond for its fair
value on 1 January 20X2.
The requirement to recognise a loss allowance on debt instruments held at amortised cost or fair value
through other comprehensive income should be ignored.

[ACCA SBR Kaplan Book]


22. Magpie (FV of Loan)
On 1 January 20X1, Magpie lends $2 million to an important supplier. The loan, which is interest-free, will be
repaid in two years’ time. The asset is classified to be measured at amortised cost. There are no transaction
fees.
Market rates of interest are 8%. The loss allowance is highly immaterial and can be ignored.

Required:
Explain the accounting entries that Magpie needs to post in the year ended 31 December 20X1 to account for
the above.

From the desk of Hassnain R. Badami, ACA


TSB Education-Premium Accountancy Courses P a g e 98 of 318

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