On 1 January 2019, Martin Company purchased a 7-year bond issued by the Nelson Company with a coupon interest rate of 3%. At the accounting year end of 2022, the accountant (Lawson) of Martin Company found that the Nelson Company's earning ability was very low because of the loss of a major customer. The bond interest payments in 2022 were not punctual. The cash flow statement of Nelson Company showed a deficit cash balance for the two consecutive years of 2021 and 2022. The effective interest rate used by Martin Company is 5%.

On 1 January 2019, Martin Company purchased a 7-year bond issued by the Nelson Company with a coupon interest rate of 3%. At the accounting year end of 2022, the accountant (Lawson) of Martin Company found that the Nelson Company's earning ability was very low because of the loss of a major customer. The bond interest payments in 2022 were not punctual. The cash flow statement of Nelson Company showed a deficit cash balance for the two consecutive years of 2021 and 2022. The effective interest rate used by Martin Company is 5%.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

According to IFRS 9, explain how Lawson should deal with

(i) the expected credit loss and

(ii) the interest revenue in respect of the above mentioned bond investment held by Martin Company.

On 1 January 2019, Martin Company purchased a 7-year bond issued by the Nelson
Company with a coupon interest rate of 3%. At the accounting year end of 2022, the
accountant (Lawson) of Martin Company found that the Nelson Company's earning
ability was very low because of the loss of a major customer. The bond interest
payments in 2022 were not punctual. The cash flow statement of Nelson Company
showed a deficit cash balance for the two consecutive years of 2021 and 2022. The
effective interest rate used by Martin Company is 5%.

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