[uran]

we should calculate the PV using the market rate. Firstly,

find the PV each year. year 2018 300000/(1+0.082)
year 2019 300000/(1+0.076)^2
year 2020 300000/(1+0.078)^3
year 2021 300000/(1+0.06)^4

Am I right? Am I the right direction? Please help me thank you

[uran]

face value 5000000/6%= 300000 every year the company should pay.

journal entry

01.01.2017
Dr Cash 5000000
Cr Acc payable 5000000

30.06.2018

Dr Interest expense 300000
Cr Cash 300000
untill 30.06.2020 -same

the last year 30.06.2021

Dr Interest expense 300000
Dr Acc payable 5000000
Cr Cash 5300000

[uran]

On the first of July 2017, your company issued debentures with a face value of $5 million Australian dollars. The transaction costs of issuing these instruments equalled $500,000. These instruments have a life of 4 years and pay a coupon payment of 6% of the face amount annually on the 30th of June. These instruments are classified as Fair Value Through the Profit or Loss (FVTPL).
These are the only financial instruments issued by the company. They are also the only instruments classified as FVTPL.
The table below shows the relevant interest rates over the life of the life of the debentures.
Dates Market rates LIBOR rates
1/07/2017 7.8% 3.8%
30/06/2018 8.2% 4.2%
30/06/2019 7.6% 3.3%
30/06/2020 7.8% 3.3%
30/06/2021 6.0% 3.4%

Your company uses the London Interbank Offered Rate (LIBOR) as a proxy for market risk.

a) Prepare all the relevant journal entries relating to these debentures. Your entries will cover the entire life-cycle of these instruments. You must reference your journal entries.

b) Why would the standard setters require this accounting treatment? What were they worried about? Comment on the quality of this accounting treatment. When discussing the quality of this rule, you need to have a strong reference point. How can you determine whether this is a ‘good’ or ‘bad’ or ‘useless’ accounting rule?

[Author]

Posts