Question

QUESTION 3

Lynott Limited purchased a five-year bond on 1 January 2015 at a cost of £10,000,000 with annual interest of 5%, which is also the effective rate, payable on 31 December annually. At the reporting date of 31 December 2015 interest has been received as expected and the market rate of interest is now 6%.

Requirement

(a) Show how the financial asset should be accounted for in the financial statements of Lynott Limited for the year ended 31 December 2015 on the basis that it is classified:

(i) as fair value through profit or loss (FVTPL); and

(ii) to be measured at amortised cost, on the assumption it passes the necessary tests and has been properly designated at initial recognition.

Answer 1

	Excerpts of Balance Sheet of Lynott Limited
	Assets
	Financial asset
	Investment in securities held at FVTPL		10,000,000
	Excerpts of Profit and Loss of Lynott Limited
	Income
	Revenue		-
	Other income
	Net income from financial instruments at FVTPL		250,000
	Total income		250,000
2	Presentation under Amrotised cost-
	Excerpts of Balance Sheet of Lynott Limited
	Assets
	Financial assets		10,000,000
	Investment in financial instruments at amoritsed cost
	Excerpts of Profit and Loss of Lynott Limited
	Income
	Revenue		-
	Finance income
	Interest income on securities at amortised cost		250,000
	Total income		250,000