There is an exam question that reads:
On 1 Jan 2010, a company purchased a certificate of deposit issued by a bank at $2,264,000 in the market. The CD carries interest at 4.25% p.a. and is due to be redeemed by the bank at the nominal amount of $2,500,000 on 31 December 2013. Interest is payable annually on 31 December. The company intends to hold it up to redemption date, the effective yield on the investment is 6%.
The answer is that as at 31/12/2010, the CD is measured at amortised cost as follows:
{ 2,264,000 x (1+6%) ) – 2,500,000 x 4.25%
= 2,293,590
I cannot follow the logic of how to work out the amortised cost of FA. Could anyone kindly tell me the logic behind the calculation and what then is the amortised cost of the Financial asset at the next balance sheet dated 31/12/2011?
Thank you.
On 1 Jan 2010, a company purchased a certificate of deposit issued by a bank at $2,264,000 in the market. The CD carries interest at 4.25% p.a. and is due to be redeemed by the bank at the nominal amount of $2,500,000 on 31 December 2013. Interest is payable annually on 31 December. The company intends to hold it up to redemption date, the effective yield on the investment is 6%.
The answer is that as at 31/12/2010, the CD is measured at amortised cost as follows:
{ 2,264,000 x (1+6%) ) – 2,500,000 x 4.25%
= 2,293,590
I cannot follow the logic of how to work out the amortised cost of FA. Could anyone kindly tell me the logic behind the calculation and what then is the amortised cost of the Financial asset at the next balance sheet dated 31/12/2011?
Thank you.
