14 February 2011
XYZ Ltd. purchases a debt Instrument with 5 years remaining to maturity for its fair value of Rs.1000 (including transaction cost). The Instrument has principal Amount of Rs. 1250/- and carries fixed Intrest of 4.7% i.e. paid annually. XYZ Ltd. recognised Rs 58.75 as Intrest revenue each year. Comment on Management's action... M not able to get from which IAS/ IFRS this ques is....
14 February 2011
As per IFRS , financial assets held to maturity is to be valued intially at fair value. In the subsequent year assets has to be valued at amortised cost less impairment loss.
Fair value is calculated based on present value. Difference between the fair value and actual value is charged to profit and loss account.
As per above interest to be calculated on Rs. 1250 i.e. Rs. 58.75
Diffrene between interest as per market and RS. 58.75 is to be deducted from amortised cost of Rs. 1000.
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