question archive On January1, 2010, Agusan Company purchased bonds with face value of P5, 000,000 to be held as “available for sale”
On January1, 2010, Agusan Company purchased bonds with face value of P5, 000,000 to be held as “available for sale”
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On January1, 2010, Agusan Company purchased bonds with face value of P5, 000,000 to be held as “available for sale”. The entity paid P4, 600,000 plus transaction costs of P142, 000. The bonds mature on December 31, 2012 and pay 6% interest annually on December 31 each year with 8% effective yield. The bonds are quoted at 105 on December 31, 20210 and 110 on December 31, 2011.What amount of cumulative unrealized gain on these bonds should be reported in the 2011 statement of changes in equity?
a. 500, 000
b. 250, 000
c. 592, 931
d. 164, 291
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Answer c
|
Date |
Interest |
Interest |
|
Discount |
Carrying |
|
|
Received |
income |
|
amortization |
amount |
|
1/1/2010 |
|
|
|
|
4,742,000 |
|
12/31/2010 |
300,000 |
379,360 |
79,360 |
|
4,821,360 |
|
12/31/2011 |
300,000 |
385,709 |
85,709 |
|
4,907,069 |
|
12/31/2012 |
300,000 |
392,931 |
92931 |
|
5,000,000 |
The interest received equal to 6% multiplied by the face value. The interest income is equal to 8% multiplied by the book value.
|
Market value – 12/31/2011 (5,000,000 x 110) |
5, 250,000 |
|
Unrealized gain – December 31, 2010 |
428, 640 |
|
Market value – 12/31/2011 (5,000,000 x 110) |
5, 500,000 |
|
Carrying amount – 12/31/2010 |
(4, 907,069) |
|
Cumulative unrealized gain – December 31, 2011 |
592, 931 |
|
Under PFRS 9, bonds cannot be classified anymore |
as “available for sale”. Bonds can be |
classified only as “financial asset at amortized cost”, or may be designated asset “at fair value through profit or loss”.
