Question

Saucy Ltd ("Saucy') is a company listed on the JSE Ltd. The following information for the year ended 30 June 20.20 is available: Debentures On 1 January 20.20 Saucy bought 80 000 debentures for a total price of R6 480 000 and paid cash on the same date. The nominal value of the debentures is R90 each and the nominal interest rate is 10% per annum. The debentures pay interest annually on 31 December and the debentures are redeemable at R95 each on 31 December 20.25. Saucy also paid transaction costs, associated with the purchase of the debentures, of 2% on 1 January 20.20. Saucy's management does not expect to actively trade the debentures, but does not necessarily expect to hold all of them to maturity. In order to generate cash for investment or liquidity purposes, Saucy's management will sell some of these debentures. The extent of these sales over the life of the instrument is likely to be frequent and significant in value. On 1 January 20.20 and 30 June 20.20, the fair value of the 80 000 debentures was R6 520 000 and R7 100 000 respectively.

Can I please get help with the classification of the debentures.

Answer 1

Answer :

In above question it has been mentioned that Saucy's management neither expect to actively trade the debentures nor they expect to hold all of them till maturity.

Because management can sell some debentures to generate cash for liquidity purpose, the debentures would be classified as available for sale securities.