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Wiley IFRS: Practical Implementation Guide and Workbook
200,000
40,000
Year (A) Beginning-
(B) Interest cash
(C) Reported
(D) Amortization (E) End-of-period
of-period
inflows (at
6%)
and
interest
income
ofdebt discount
amortized cost
amortized cost
principal cas h inflow
(- (AJ
X
7.64%1
H CI -IBl/
(- (AJ +(Dl/
20X1
93,400
6,000
7,133
l,133
94,533
20X2
94,533
6,000
7,220
1,220
95,753
20X3
95,753
6,000
7,313
1,313
97,066
20X4
97,066
6,000
7,413
1,413
98,479
20X5
98,479
106,000
7,521
1,52/
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
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
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
Case
Study8
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.