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Hi. My question is not related to MCS above.
AB acquired investment in debt instrument(debenture) of BC on 1 January 20X0 at its par value of $3 million. Transaction costs relating to the acquisition were $200000. The investment earns a fixed annual return of 6%, received in arrears. The principle amount will be repaid to AB in 4 Years’ time at a premium of $400000. The effective interest rate of 7.05%.
Show the amount to be recorded in the statement of financial position and Statement of profit/loss for Both AB and BC.I know how to calculate from the perspective of AB, where the Transaction costs is capitalized, and the opening balance in year 1 will be $3,200,000 and the coupon payment is $180,000, 6% of $3 million. Effective interest of $225600(7.05%*3200000) charge to P&L.
I don’t know how BC will deal with that since it is a liability to him but an Asset to AB.