On 1 January 2014, Company B purchased 100 5 year, R100 bonds from TP Limited at par. The bonds are redeemable at par and bear interest at 5% per annum. The market rate on equivalent bonds i s 5% on 1 January 2014 and 4.2% on 31 December 2014. On 1 January 2014, Company B incurred direct costs on this transaction of R1 000. On 1 January 2014, the risk of TP defaulting on payments to Company B was assessed as low (2%). At the end of the year(31 December2014) the risk of default increased significantly to 20%. You are required to: Prepare the journal entries that Company B is required to process in respect of the expected credit losses for the year ended 31 December 2014 assuming the asset is held at amortised cost.
On 1 January 2014, Company B purchased 100 5 year, R100 bonds from TP Limited at par. The bonds are redeemable at par and bear interest at 5% per annum. The market rate on equivalent bonds i s 5% on 1 January 2014 and 4.2% on 31 December 2014. On 1 January 2014, Company B incurred direct costs on this transaction of R1 000. On 1 January 2014, the risk of TP defaulting on payments to Company B was assessed as low (2%). At the end of the year(31 December2014) the risk of default increased significantly to 20%.
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