IFRS 9

On 1 December 20X7, Bubble Co acquired an investment in $10 million bonds in Fizz Co at par value. The bonds have an annual interest rate of 6%, payable annually in arrears, and are repayable at par. Bubble Co’s business model is to collect contractual cash flows and sell financial assets and the bonds were not credit impaired at acquisition. At 31 October 20X8, there has been no significant increase in credit risk and there is a 2% probability of default within 12 months and a 5% probability of default over the lifetime of the loan. Default would result in an estimated 20% loss in par value. At 31 October 20X8, the fair value of the loan is $9.77 million. The only accounting entry made was to correctly recognise the financial asset at acquisition. , explain, with suitable calculations, how the financial asset should be accounted for in the separate financial statements of Bubble Co for the year ended 31 October 20X8