IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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Wiley IFRS: Practical Implementation Guide and Workbook

(C) Reported interest income (- (AJ X 7.64%1

(B) Interest cash inflows (at 6%) and principal cas h inflow

(D) Amortization (E) End-of-period

Year (A) Beginning-

of-period

ofdebt discount

amortized cost (- (AJ +(Dl/

amortized cost

H CI -IBl/

93,400 94,533 95,753 97,066 98,479

6,000 6,000 6,000 6,000

7,133 7,220 7,313 7,413 7,521

l,133 1,220 1,313 1,413 1,52/

94,533 95,753 97,066 98,479

20X1 20X2 20X3 20X4 20X5

106,000

0.00

At the end of20X1, Ent ity A ma kes this journal entry: Dr Cash 6,000 Dr Held-to-maturity investment 1,133 Cr Interest income 7,133 At the end of 20X2, Entity A makes this j ournal entry: Dr Cash 6,000 Dr Held-to-maturity investment 1,220 Cr Interest income 7,220 At the end of 20X3, Entity A makes this jo urnal entry: Dr Cash 6,000 Dr Held-to-maturity investment 1,313 Cr Interest income 7,313 At the end of 20X4, Ent ity A makes this j ournal entry: Dr Cash 6,000 Dr Held-to-maturity investment 1,413 Cr Interest income 7,413 At the end of20X5, Entity A makes this jo urnal entry: Dr Cash 106,000 Dr Held-to-maturity investment 98,479 Cr Interest income 7,521

200,000 40,000 if interest income comp uted using the effecti ve interest method for the interest period between No– vembe r 30, 20X5, and May 30, 20X6, is $240,000, then one-sixth of that would be alloca ted to the 20X5 repo rting period (i.e., $40,000) and fiv e-sixths would be allocated to the 20X6 reporting pe– riod (i.e., $200,000). On December 31, 20X5, this j ournal entry would be made: Dr Interest receivable 40,000 Cr Interest income 40,000 When interest is received on May 30, 20X6, this j ournal entry would be made: Dr Cash 240,000 Cr Interest income Cr Interest receivable 6.2.2.9 If the report ing period does not coincide with the interest payment dates (e.g., if interest is paid twice annually, on May 30 and November 30, while the reporting period end s on December 31) , the amortization schedule is prepared using intere st peri od s rath er than reporting periods. The amounts computed as interest income in eac h interest peri od are then alloca ted to reporting periods. Example This case illustrates how to determine the amortized cost of a fi nancial instrument, including the prepa– ration of an amo rtization schedule. Facts On January I, 20X5, Entity A purchases a bond in the market for $53,993. The bond has a principal amount of $50,000 that will be repaid on December 31, 20X9. The bond has a stated rate of 10% payable annually, and the quoted market interest rate for the bond is 8%. Required Indicate whether the bond was acquired at a premium or a discount. Prepare an amortization schedule that shows the amortized cost of the bond at the end of each year between 20X5 and 20X9 and reported interest income in each period. Case Study8