ExpertMedium2 marksMultiple Choice
ACCA · Question 09 · Accounting for Transactions
SECTION A
On 1 January 20X2, Apex Corp issued a 3-year bond at its par value of $1,000,000. The bond carries a coupon rate of 4% paid annually in arrears. The bond will be redeemed at a premium, resulting in an effective interest rate of 6%.
What is the carrying amount of the financial liability in Apex Corp's Statement of Financial Position as at 31 December 20X2?
SECTION A
On 1 January 20X2, Apex Corp issued a 3-year bond at its par value of $1,000,000. The bond carries a coupon rate of 4% paid annually in arrears. The bond will be redeemed at a premium, resulting in an effective interest rate of 6%.
What is the carrying amount of the financial liability in Apex Corp's Statement of Financial Position as at 31 December 20X2?
Answer options:
A.
$1,000,000
B.
$1,060,000
C.
$1,020,000
D.
$1,040,000
How to approach this question
Use the amortized cost table: Opening Balance + Effective Interest (Opening Balance × Effective Rate) - Cash Paid (Nominal Value × Coupon Rate) = Closing Balance.
Full Answer
C.$1,020,000✓ Correct
Under IFRS 9, financial liabilities are typically measured at amortized cost.
Opening balance: $1,000,000.
Interest expense (Profit or Loss): $1,000,000 * 6% = $60,000.
Cash paid: $1,000,000 * 4% = $40,000.
Closing balance: $1,000,000 + $60,000 - $40,000 = $1,020,000.
Common mistakes
Using the coupon rate for the interest expense, or forgetting to subtract the cash payment.
Practice the full ACCA FR — Financial Reporting Practice Exam 3
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