Happy Sdn Bhd purchased a debt instrument on 1 January 2023 at its fair value of RM5 million. The face value of the instrument was RM12 million with an interest rate of 2.35%. The instrument will mature in three years’ time with a redemption value of RM6.25 million. The market interest rate was 10%. Transaction cost amounted to RM400,000. The directors wish to measure this transaction at amortised cost using the effective interest rate method as it intends to hold the financial instrument to maturity. Required: Discuss the accounting treatment in accordance with the relevant financial reporting standards and where necessary, show how it should be disclosed in the financial statements of Happy Sdn Bhd for the year ended 31 December 2023. Please give calculation in details step by step.
Happy Sdn Bhd purchased a debt instrument on 1 January 2023 at its fair value of RM5 million. The face value of the instrument was RM12 million with an interest rate of 2.35%. The instrument will mature in three years’ time with a redemption value of RM6.25 million. The market interest rate was 10%. Transaction cost amounted to RM400,000. The directors wish to measure this transaction at amortised cost using the effective interest rate method as it intends to hold the financial instrument to maturity. Required: Discuss the accounting treatment in accordance with the relevant financial reporting standards and where necessary, show how it should be disclosed in the financial statements of Happy Sdn Bhd for the year ended 31 December 2023. Please give calculation in details step by step.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Happy Sdn Bhd purchased a debt instrument on 1 January 2023 at its fair value of
RM5 million. The face value of the instrument was RM12 million with an interest rate
of 2.35%. The instrument will mature in three years’ time with a redemption value of
RM6.25 million. The market interest rate was 10%. Transaction cost amounted to
RM400,000. The directors wish to measure this transaction at amortised cost using
the effective interest rate method as it intends to hold the financial instrument to
maturity.
Required:
Discuss the accounting treatment in accordance with the relevant financial reporting
standards and where necessary, show how it should be disclosed in the financial
statements of Happy Sdn Bhd for the year ended 31 December 2023. Please give calculation in details step by step.
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