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June 2013 past paper question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › June 2013 past paper question

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by P2-D2.
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    Posts
  • November 15, 2017 at 6:45 pm #416008
    msk29
    Member
    • Topics: 82
    • Replies: 65
    • ☆☆

    Hello Sir!

    Qn: Trailer has made a loan of $50 million to a charitable organisation for the building of new sporting facilities. The loan was made on 1 June 2012 and is repayable on maturity in three years’ time. Interest is to be charged one year in arrears at 3%, but Trailer assesses that an unsubsidised rate for such a loan would have been 6%. The only accounting entries which have been made for the year ended 31 May 2013 are the cash entries for the loan and interest received which have resulted in a balance of $48·5 million being shown as a financial asset.
    My requirement is to know its actual classification and the reason why?
    …..——-…………———………….————……………——-………..———–…………——

    In the answer, this question is solved by considering it a Financial Asset (which I agree), as it shows that the company is lending a loan to another organization.

    Plus it also shows that it comes under FV through amortized cost (which I’m in doubt).

    In my opinion, I find this transaction dealing with non-trading activity (charity), therefore it comes under FV through OCI.

    What is your suggestion?

    Thank you.

    November 19, 2017 at 8:51 pm #416743
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7172
    • ☆☆☆☆☆

    Hi,

    Why would the loan to a charity change the classification? The entity’s objective is to collect the cash, so it would be classified as amortised cost.

    Thanks

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