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Hi, Can you please explain the adjustment for Loan. I don’t know when to use FVTPL or amortised cost. I also dont know how the adjusting figures were obtained
I’m not sure what there is to not understand! Incorrect entries have been put through by the company and they need to be reversed. Then the correct entries put through. The workings show how / where the figures have come from so do you want to let me know which particular figures you’re not happy with?
Where we have a mixed instrument, it’s necessary to split out the loan element from the equity element.
The only way we can do this is to find the present value of the future cash flows associated with the loan element.
In the printed solution to this question there is a table showing 1.5 interest received for the next two years and 1.5 interest + 50 loan repayment in three years’ time.
The discount factor has been applied to those three amounts and the resultant values have been added to arrive at a present value of 46.01
If 46.01 is the value of the debt element, then by deduction 3.99 must be the equity element
Ok?
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