Financial asset example 3 measured at amortised cost | Free ACCA & CIMA online courses from OpenTuition

This topic has 3 replies, 2 voices, and was last updated 7 years ago by P2-D2.

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December 6, 2018 at 8:54 am #487867
kennigara
Participant
- Topics: 194
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Hi Dear Tutor,I have a question.
Norman bought 10000 debentures at a 2% discount on the par value of 100$.

10000*100*0.98=980000
debit investment-980000
credit bank-980000

I gave discounts journal entries below.Is it correct?
debit discount cost-20000
credit cash or bank-20000

Thanks in advance
December 7, 2018 at 9:04 pm #488334
P2-D2
Keymaster
- Topics: 4
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Hi,

No, the discount is not recorded separately. When you have recognised the investment at $98 per debenture then the discount has already been included.

Thanks
December 8, 2018 at 8:32 am #488410
kennigara
Participant
- Topics: 194
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But if we record the investment without discount amount by giving journal entries and then giving separately transaction cost journal entries and then making adjustment such as below. If we recognise investment by deducting transaction cost, how is it possible not to give TC’s journal entry?where does TC have to be recognized in P/L? I watched your lecture it is really excellent but this question arose my mind and decided to identify it in detail.

Debit investment-1000000
Credit bank-1000000

Debit Transaction cost-20000
Credit Investment-20000

adjustment

Debit investment-980000
credit bank-980000
December 17, 2018 at 5:57 pm #492125
P2-D2
Keymaster
- Topics: 4
- Replies: 7235
Yes, you can split out the entry into the two parts of the transaction, but it is much easier to record it as one journal entry. Either way you end up with the same answer.

Glad you enjoyed the lecture, thanks for the very kind comments.

Thanks
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