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In a(ii), why hasn’t the change in effective interest rate of 6% been incorporated while the calculation of the year end value of the bond?
And also I have a confusion with this, that why did not we make such a table which had Opening Balance, Effective Int Rate, Cash Flow, and Closing balance in it? Rather the answerer just made a discounted cash flows table in both a(i) and a(ii).
Could you please help me with these 2 doubts?
Thanks 🙂I can’t access the hub at present – please can you give me enough detail so I can understand what you are asking.
Also, please use the topic rather than the question name as the thread header in future posts.
🙂
Hi, This is the question from the acca study hub. Quite confusing as they calculated the FVTPL and Amortized cost using expected cashflows.
Suarez purchased a five-year bond on 1 January 20X0 at a cost of $5 million with annual interest of 5%, which is also the effective rate, payable on 31 December annually. At the reporting date of 31 December 20X0 interest has been received as expected and the market rate of interest is now 6%.
Required:
(a) Explain how the financial asset should be accounted for at 31 December 20X0 if it is classified at:
(i) fair value through profit or loss (FVTPL), and
(ii) amortised cost.I don’t have access to question but here goes
Opening CA 5,000
P&L finance cost 250
Cash paid 250
Closing CA (if using amortised cost) 5,000Closing CA if using FVPL = 250/1.06 + 250/1.06^2+250/1.06^3+250/1.06^4 + 5000/1.06^4 = 4826 (using my phone, so let me know if that’s wrong).
Difference between 5000 and 4826 to P&L. Let me know.
PS For future posts use topic not question as thread header.
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