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I have a case study about the recognition and measurement of bonds in 2020 and 2021 as well as calculation of interest income in 2022, please help me.
Beaker paid $19.526 million for a bond with an annual coupon of $0.8 million, on 31 March 2020. This transaction was at fair value. The bond matures on 31 March 2023 and had an effective interest rate of 8%. Beaker’s business model is to hold the bond until maturity. The bond was considered to be moderate risk when purchased but was not credit impaired.
The issuer paid the coupon on 31 March 2021. The credit risk implicit in the bond was assessed at that date as having increased signi?cantly. The probability that the issuer would default on the coupon that is due on 31 March 2022 was estimated as 25%. The loss in event that default did occur was estimated as 50%.
The probability that the issuer would default on paying the final coupon and principal, due on 31 March 2023, was estimated as 50% and the loss in event of that default was estimated as 60% of the combined final payment due.
Please let me know which ACCA exam this is from and be much more specific with your question, stating what you think the answer is and what the examiner said it is.
(I guess you know but you have posted this in Ask the Tutor, not the general forum).