Question

ASSIGNMENT 4 On 1 January 2009, a company buys K100,000 of 696 loan stock for K93,930. Interest will be received on 31 December each year and the stock wll be redeemed at par on 31 December 2013. The company intends to hold the stock until maturity and calculates the effective interest rate to be 7.5% per annum. Financial statements are prepared to 31 December each year. a) State the amount at which this stock should be measured on 1 January 2009 b) Calculate the amount at which the loan stock should be measured on 31 December2009,2010,2011,2012,and2013 c) Show that the effective rate of 7,5% exactly discounts estimated future cash d) Explain the four categorles of financial assets and their associated e) Define what financial instruments are and give examples. receipts to the initial carrying amount of the asset as required by IAS39 measurement rules

Answer 1

Section a The instrument (stock) will be measured at fair value on the datd of purchase The fair value will be computed using the present value of cash flow the instrument. The cash flows will be discount @ 7.5% The PV calculation is as follows: therefore, the stock should be measured at it 93,930(rounded off)