Avadi Ltd. purchased $200,000 face value 7% bonds on June 1, 2019. Interest on the bonds...

Avadi Ltd. purchased $200,000 face value 7% bonds on June 1, 2019. Interest on the bonds will be paid semi-annually on May 31st and November 30th. The yield rate at the time of purchase was 5%. The bonds will mature in five years from the date of purchase. Assume Avadi Ltd. prepares financial statements in accordance with IFRS and uses the amortized cost model. Required: 1. Record the entry for the purchase of the bond.

2. Record the entry as of November 30th.

3. Record the entry as of December 31st. 4. Now assume that Avadi records the bonds using FVNI. Record the additional entry needed as of December 31st if the fair value of the bonds is now $215,000. (2 marks

Expert Solution

	Interest Rate	7%
	Market Yield	5%

Time	Interest Income	PV Factor	Amount
1.00	7,000	0.976	6,829.27
2.00	7,000	0.952	6,662.70
3.00	7,000	0.929	6,500.20
4.00	7,000	0.906	6,341.65
5.00	7,000	0.884	6,186.98
6.00	7,000	0.862	6,036.08
7.00	7,000	0.841	5,888.86
8.00	7,000	0.821	5,745.23
9.00	7,000	0.801	5,605.10
10.00	2,07,000	0.781	1,61,708.07
Total Cash Flows			2,17,504.13
Initial Outflow		2,00,000
Net Inflows		17,504.13


JOURNAL ENTRIES (In Books of AVADI LTD.)
Date	Particulars	Debit	Credit
01-Jun-19	Investment In 7% Bonds A/c …Dr.	2,00,000
	To Bank A/c		2,00,000
	(Being the Bonds Purchased)

30-Nov-19	Bank A/c	7,000
	Investment In 7% Bonds A/c …Dr.		7,000
	(Being Interest Income Booked)

01-Jun-19	Investment In 7% Bonds A/c …Dr.	5,000
	To Interest Income A/c		5,000
	(Being Interst Income Booked)

31-Dec-19	Investment In 7% Bonds A/c …Dr.	13,000
	To other Comprehensive Income		13,000
	(Being Bonds Booked at Fair Value @ 215,000)

ekkarill92 answered 1 year ago

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