SAK LM, A2

Tugas Individu

Topik 4: Financial Instrument

Case 1.
Entity A has originated a 5% fixed rate loan asset that is measured at amortized cost
($100,000). Because Entity A is considering whether to securitize the loan asset (i.e., to
sell it in a securitization transaction), it wants to eliminate the risk of changes in the fair
value of the loan asset. Thus, on January 1, 20X6, Entity A enters into a pay-fixed, receive-
floating interest rate swap to convert the fixed interest receipts into floating interest
receipts and thereby offset the exposure to changes in fair value. Entity A designates the
swap as a hedging instrument in a fair value hedge of the loan asset.
Market interest rates increase. At the end of the year, Entity A receives $5,000 in interest
income on the loan and $200 in net interest payments on the swap. The change in the fair
value of the interest rate swap is an increase of $1,300. At the same time, the fair value of the
loan asset decreases by $1,300.
Required
Prepare the appropriate journal entries at the end of the year. Assume that all conditions
for hedge accounting are met.
Case 2 : This case illustrates when to separate embedded derivatives.
Entity A is seeking to identify embedded derivatives that are required to be separated
under IAS 39. It is considering whether these contracts contain embedded derivatives:
(a) An investment in a bond whose interest payments are linked to the price of
gold. The bond is classified as at fair value through profit or loss.
(b) An investment in a bond whose interest payments are linked to the price of
silver. The bond is classified as available for sale.
(c) An investment in a convertible debt instrument that is classified as available for
sale
(d) A lease contract that has a rent adjustment clause based on inflation
(e) An issued convertible debt instrument
Required
Identify any embedded derivatives in these cases and, in each case, determine whether
any identified embedded derivative requires separate accounting.

Case 3 : This case tell about how to account for impairment of loans and receivables.
Entity A has a loan asset whose initial carrying amount is $100,000 and whose effective
interest rate is 8%. On January 1, 20X5, Entity A determines that the borrower will
probably enter into bankruptcy, and expects to collect only $20,000 of remaining principal
and interest cash flows. Entity A expects to recover this amount at the end of 20X5.

1
Required:
Determine the amount that Entity A should record as an impairment loss during 20X5 and
the amount of interest income that would be reported during 20X5, if any.

Case 4 : how to account for available-for-sale financial assets.

On August 1, 2006, Entity A purchased a two-year bond, which it classified as available for
sale. The bond had a stated principal amount of $100,000, which Entity A will receive on
August 1, 2008. The stated coupon interest rate was 10% per year, which is paid
semiannually on December 31 and July 31. The bond was purchased at a quoted annual
yield of 8% on a bond-equivalent yield basis.
Required
(a) What price did Entity A pay for the bond? (Hint: Compute the present value using a
semiannual yield and semiannual periods.)
(b) Did Entity A purchase the bond at par, at a discount, or at a premium?
(c) Prepare the journal entry at the date Entity A purchased the bond. (Entity A paid
cash to acquire the bond. Assume that no transaction costs were paid.)
(d) Prepare a bond amortization schedule for years 2006 to 2008. For each period,
show cash interest receivable, recognized interest revenue, amortization of any bond
discount or premium, and the carrying amount of the bond at the end of the period.
(e) Prepare the journal entries to record cash interest receivable and interest revenue
on July 31, 2007.
(f) If the quoted market yield for the bond changes from 8% to 9% on December 31,
2007, should Entity A recognize an increase, a decrease, or no change in the carrying
amount of the bond on that date? If you conclude that the carrying amount should
change, compute the change and prepare the corresponding journal entries.