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    Acquisition & Interest Date Interest Earned (5%) Interest Income (4%) Premium Amortization Book Value

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    Gray Javier
    Bell Company should report debt investments of P4,211,081 in its statement of financial position as of December 31, 2014. Granny Company should report total interest income of P377,372 for the year ended December 31, 2015 under a business model of collecting all contractual cash flows. If Granny's business model was to trade debt instruments, it would report interest income of P320,000. Thread Company would recognize a loss of P72,900 from the sale of 25% of its debt instrument on December 31, 2015 but would not recognize any gain or loss from reclassifying the remaining investment to fair value through profit or loss on January 1, 2016.

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    Acquisition & Interest Date Interest Earned (5%) Interest Income (4%) Premium Amortization Book Value

    Uploaded by

    Gray Javier
    660 views3 pages
    Bell Company should report debt investments of P4,211,081 in its statement of financial position as of December 31, 2014. Granny Company should report total interest income of P377,372 for the year ended December 31, 2015 under a business model of collecting all contractual cash flows. If Granny's business model was to trade debt instruments, it would report interest income of P320,000. Thread Company would recognize a loss of P72,900 from the sale of 25% of its debt instrument on December 31, 2015 but would not recognize any gain or loss from reclassifying the remaining investment to fair value through profit or loss on January 1, 2016.

    Original Title

    BSA 4

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    Bell Company should report debt investments of P4,211,081 in its statement of financial position as of December 31, 2014. Granny Company should report total interest income of P377,372 for the year ended December 31, 2015 under a business model of collecting all contractual cash flows. If Granny's business model was to trade debt instruments, it would report interest income of P320,000. Thread Company would recognize a loss of P72,900 from the sale of 25% of its debt instrument on December 31, 2015 but would not recognize any gain or loss from reclassifying the remaining investment to fair value through profit or loss on January 1, 2016.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    660 views3 pages

    Acquisition & Interest Date Interest Earned (5%) Interest Income (4%) Premium Amortization Book Value

    Uploaded by

    Gray Javier
    Bell Company should report debt investments of P4,211,081 in its statement of financial position as of December 31, 2014. Granny Company should report total interest income of P377,372 for the year ended December 31, 2015 under a business model of collecting all contractual cash flows. If Granny's business model was to trade debt instruments, it would report interest income of P320,000. Thread Company would recognize a loss of P72,900 from the sale of 25% of its debt instrument on December 31, 2015 but would not recognize any gain or loss from reclassifying the remaining investment to fair value through profit or loss on January 1, 2016.

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    BSA 4

    1. In its December 31, 2014 statement of financial position, how much should Bell
    Company report as debt investment?

    a. P4,211,081
    b. P4,241,424
    c. P4,270,000
    d. P4,337,000

    ANSWER: A

    Acquisition & Interest Interest Premium Book Value


    Interest Date Earned Income Amortization
    (5%) (4%)
    01/01/14 0 0 0 4,270,600
    07/01/14 200,000 170,824 29,176 4,241,424
    12/31.14 200,000 169,657 30,343 4,211,081

    Data for no. 17 and 18

    On July 1, 2014, Granny Company purchased an 8%, 4-year, P4,000,000 face value
    bonds for P3,746,400. The bonds are dated July 1, 2014 and pays interest every June
    30. Effective rate of the bond is 10%.

    2. If the company has a business model of collecting all contractual cash flows
    involving interests and principal on outstanding debt security, what is the total
    amount of interest income that Granny should report in its December 31, 2015
    profit or loss?

    a. P320,000
    b. P374,640
    c. P377,372
    d. P380,104

    ANSWER: C
    Interest from Jan. 1, 2015 to June 30, 2015 (P374,640 x ½) P187,320
    Interest from July 1, 2015 to Dec. 31, 2015 (P380,104 x ½) 190,052
    Total interest income for the year ended December 31, 2015 P377,372
    Table of Amortization:
    Acquisition & Interest Interest Discount Book Value
    Interest date Earned Income Amortization
    07/01/14 0 0 0 3,746,400
    06/30/15 320,000 374,640 56,540 3,801,040
    06/30/16 320,000 380,104 60,104 3,861,144
    06/30/17 320,000 386,114 66,114 3,927,258
    06/30/18 320,000 392,742 72,742 4,000,000
    3. If the company has a business model with the objective of trading and selling all
    debt instruments, what is the total amount of interest income that Granny should
    report in its December 31, 2015 profit or loss?

    a. P320,000
    b. P374,640
    c. P377,372
    d. P380,104

    ANSWER: A

    Premiums or discounts and any transaction costs on debt security measured at fair
    value to profit or loss are not amortized; hence, the amount of interest income to be
    reported is the amount of nominal interest.

    Data for no. 19 and 20

    Thread Company with a business model of collecting all the contractual cash flows
    pertaining to interest and principal of outstanding debt securities, purchased at face on
    January 2, 2014, purchased a 6-year 12% P5,000,000 face value bond.

    Thread Company is in dire need of cash to finance the acquisition of a long-lived asset
    to be used in its continuing operation. On December 1, 2015, the company unitarily
    decided to dispose partly its debt instrument. The Sale was completed on December 31,
    2015 and the company managed to sell 25% of the debt instrument at the prevailing
    rate of 14%.

    PV factor of 14% after 4 years 0.592


    PV factor of 14% after 5 years 0.519
    PV factor of annuity of 14% after 4 years 2.914
    PV factor of annuity of 14% after 5 years 3.433

    On January 1, 2016, the management has the intention of reclassifying the investment
    from amortized cost valuation to fair value to profit or loss valuation.

    4. What total amount of gain or loss should the company recognize as a result of
    transfer?

    a. None
    b. P 72,900
    c. P218,700
    d. P291,600
    ANSWER: A
    The classification model is based on an entities business model and the contractual
    terms of the asset. Therefore IFRS 9 requires an entity to reclassify financial assets
    between the fair value and amortized cost categories if there is a change in its business
    model. In all other circumstances reclassification remains prohibited.

    5. What is the amount of gain or loss from the sale of the securities?

    a. None
    b. P 72,900
    c. P218,700
    d. P291,600

    ANSWER: B
    Selling Price:
    Present value of annual interest (P150,000 x 2.914) P 437,100
    Present value of face amount (P1,250,000 x .592) 740,000
    Fair value as of December 31, 2015 P1,117,000
    Less: Amortized cost (5,000,000 x 25%) 1,250,000
    Loss from sale P 72,900

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