Financial Instruments – IFRS 9

Question 1 – equity instruments as financial assets

On 1 April 20X1 Arkas bought shares in company Arion for $5,000. Arkas elected to hold them as measured
at fair value through profit or loss. Arkas also bought shares in company Spe for $7,000 and elected to hold
them as measured at fair value through other comprehensive income.
The fair value of shares in Arion was $5,500 and shares in Spe was $6,800 at 31 December 20X1.
The fair value of shares in Arion was $5,200 and shares in Spe was $7,250 at 31 December 20X2.
On 15 March 20X3 Arkas sold shares in Arion for 5,100 and shares in Spe for 7,400.
Prepare extracts from Arkas’ B/S and SofP/L&OCI for the year ended 31 December 20X1, 20X2 and
20X3.

Question 2 – debt instruments as financial assets

On 2 January 20X1 Alfa bought a $200,000 5% bond for $180,000, incurring transaction costs of $5,000.
Interest is received in arrears. The bond will be redeemed at the premium of $6,500 over par value in 3 years.
The effective rate of interest is 8.9523%.
The fair value of the bond is as follows:
31/12/20X1 $200,000
31/12/20X2 $197,000
Explain, with calculations, how the bond is accounted for over all relevant years if:
(a) Alfa plans to hold the bond until the redemption date.
(b) Alfa assumes it will sell the bond if the investment with higher return arises and eventually sells
it on 2 January 20X3 for its fair value.
(c) Alfa plans to sell the bond in short-term, and eventually sells it on 2 January 20X2 for its fair
value.

Question 3 – debt instruments as financial asset / financial liabilities

Prepare extracts from SofFP and SofP/L for relevant years for following scenarios.
1.
a) On 2 January 20X1 Alfa invested $40,000 in 5% loan note with par value $40,000. Interest is received in
arrears. The loan note will be redeemed at par in 4 years. The effective interest rate is 5%. Alfa elects to record
the financial asset at amortised cost.
b) On 2 January 20X1 Orbitar issued 5% loan note with par value $40,000. Interest is paid in arrears. Loan
note is redeemed in 4 years at par. The effective interest rate is 5%.

2.
a) On 2 January 20X1 Beta invested $50,000 in zero coupon bond with par value $50,000. The bond will be
redeemed at par in 3 years at a premium of $13,000 over nominal value. The effective interest rate is 8%.
Interest is received in arrears. Bete elects to record the financial asset at amortised cost.
b) On 2 January 20X1 Dagon issued zero coupon bond at par value $50,000. The debt is redeemed at premium
of $13,000. Bond is redeemed in 3 years. Interest is paid in arrears. The effective interest rate is 8%.

3.
a) On 2 January 20X1 Gamma invested $50,000 in 5.5% redeemable preference shares with par value $50,000.
Interest is received in arrears. The shares will be redeemed at par in 5 years and a large premium, in total at
62,500. The effective interest rate is 9.6256%. Gamma elects to record the financial asset at amortised cost.
b) On 2 January 20X1 Janssen issued 50,000 $1 redeemable preferance shares with a coupon rate of 5.5% at
par. They are redeemed at large premium in 5 years. They are redeemed in total at 62,500. Interest is paid in
arrears. The effective interest rate is 9.6256%.
4.
a) On 2 January 20X1 Delta bought a $500,000 5% loan note for $475,000. Interest is received in arrears.
The loan note will be redeemed at par in 4 years. The effective interest rate is 6.4581%. Delta elects to
record the financial asset at amortised cost.
b) On 2 January 20X1 Sancho issued 5% loan note with par value $500,000. Sancho gave discount at
purchase of 25,000. Loan note is redeemable in 4 years at par. Interest is paid in arrears. The effective
interest rate is 6.4581%.

5.
a) On 2 January 20X1 Epsilon invested $100,000 in 6% loan note with par value $100,000 and also paid
$2,000 of transaction cost. Interest is received in arrears. The loan note will be redeemed at par in 4 years.
The effective interest rate is 5.4303%. Epsilon elects to record the financial asset at amortised cost.
b) On 2 January 20X1 Sarax issued 6% loan note with par value $100,000. Sarax incurred $1,000 issue cost.
Loan note is redeemable in 4 years at par. Interest is paid in arrears. The effective interest rate is 6.2905%.

6.
a) On 2 January 20X1 Zeta bought a 30,000 5% loan note with discount of 1.5% at a purchase, moreover
incurred $1,000. Interest is received in arrears. The loan note will be redeemed at a par plus 12% premium in
5 years. The effective interest rate is 6.6579%. Zeta elects to record the financial asset at amortised cost.
b) On 2 January 20X1 Tadmor issued 5% loan note with par value $30,000 and discount of 1.5%. $600 issue
costs were incurred. The loan note will be repayable at a premium of 12% in 5 years. Interest is paid in arrears.
The effective interest rate is 7.9234%.