Financial Instruments

SECTION A On 1 January 20X8, FinTech Innovators Co issued $10 million 5% convertible bonds at par. The bonds are redeemable at par on 31 December 20Y0 (3 years later) or convertible into equity shares. The prevailing market interest rate for similar bonds without the conversion option is 8%. Discount factors at 8%: Year 1: 0.926, Year 2: 0.857, Year 3: 0.794. What amount will be credited to equity on 1 January 20X8?

SECTION B - CASE 3: FinServe Solutions FinServe Solutions Co is a fintech payment processor. The year-end is 31 March 20X7. On 1 January 20X7, FinServe factored $500,000 of its trade receivables to a bank. The bank paid FinServe $450,000 immediately. Under the terms of the agreement, FinServe must guarantee the bank against any default by the customers (with recourse). How should this transaction be recorded in FinServe's financial statements?

SECTION B - CASE 3: FinServe Solutions FinServe Solutions Co is a fintech payment processor. The year-end is 31 March 20X7. Regarding the factored receivables in the previous question (factored on 1 January 20X7 for $450,000 with recourse), the bank charges an effective interest rate of 8% per annum on the advance. What is the finance cost to be recognized in the statement of profit or loss for the year ended 31 March 20X7?

**Section A** ServeCo, a facilities management firm, factors $500,000 of its trade receivables to a bank for $470,000. The factoring agreement is 'without recourse', meaning the bank bears all the risk of bad debts. ServeCo will not be required to repay the bank if customers default. How should ServeCo account for this transaction under IFRS 9?

**Section B - Case 3: PayStream (Question 1 of 5)** *Scenario:* PayStream, a FinTech firm whose functional currency is the Dinar (D), issued 10,000 convertible bonds on 1 January 20X5 at their par value of D100 each. The bonds pay a 4% coupon annually in arrears and mature in 3 years. Similar bonds without a conversion option carry an interest rate of 7%. (PV of $1 at 7% for 3 yrs = 0.8163; PV of $1 annuity at 7% for 3 yrs = 2.6243). On 1 July 20X5, PayStream bought 50,000 shares in DataCo for D3 each, irrevocably designating them at Fair Value Through OCI (FVTOCI). At 31 December 20X5, the shares traded at D3.50. On 1 November 20X5, PayStream bought servers from a US supplier for $100,000 USD. Exchange rates: 1 Nov: $1 = D0.80; 31 Dec: $1 = D0.85. The invoice is unpaid at year-end. *Question:* What is the value of the liability component of the convertible bonds on initial recognition at 1 January 20X5?

**Section B - Case 3: PayStream (Question 2 of 5)** *Scenario:* PayStream, a FinTech firm whose functional currency is the Dinar (D), issued 10,000 convertible bonds on 1 January 20X5 at their par value of D100 each. The bonds pay a 4% coupon annually in arrears and mature in 3 years. Similar bonds without a conversion option carry an interest rate of 7%. (PV of $1 at 7% for 3 yrs = 0.8163; PV of $1 annuity at 7% for 3 yrs = 2.6243). On 1 July 20X5, PayStream bought 50,000 shares in DataCo for D3 each, irrevocably designating them at Fair Value Through OCI (FVTOCI). At 31 December 20X5, the shares traded at D3.50. On 1 November 20X5, PayStream bought servers from a US supplier for $100,000 USD. Exchange rates: 1 Nov: $1 = D0.80; 31 Dec: $1 = D0.85. The invoice is unpaid at year-end. *Question:* What is the finance cost to be recognized in the Statement of Profit or Loss for the convertible bonds for the year ended 31 December 20X5?

**Section B - Case 3: PayStream (Question 3 of 5)** *Scenario:* PayStream, a FinTech firm whose functional currency is the Dinar (D), issued 10,000 convertible bonds on 1 January 20X5 at their par value of D100 each. The bonds pay a 4% coupon annually in arrears and mature in 3 years. Similar bonds without a conversion option carry an interest rate of 7%. (PV of $1 at 7% for 3 yrs = 0.8163; PV of $1 annuity at 7% for 3 yrs = 2.6243). On 1 July 20X5, PayStream bought 50,000 shares in DataCo for D3 each, irrevocably designating them at Fair Value Through OCI (FVTOCI). At 31 December 20X5, the shares traded at D3.50. On 1 November 20X5, PayStream bought servers from a US supplier for $100,000 USD. Exchange rates: 1 Nov: $1 = D0.80; 31 Dec: $1 = D0.85. The invoice is unpaid at year-end. *Question:* At what amount will the investment in DataCo be carried in the Statement of Financial Position at 31 December 20X5?

**Section B - Case 3: PayStream (Question 4 of 5)** *Scenario:* PayStream, a FinTech firm whose functional currency is the Dinar (D), issued 10,000 convertible bonds on 1 January 20X5 at their par value of D100 each. The bonds pay a 4% coupon annually in arrears and mature in 3 years. Similar bonds without a conversion option carry an interest rate of 7%. (PV of $1 at 7% for 3 yrs = 0.8163; PV of $1 annuity at 7% for 3 yrs = 2.6243). On 1 July 20X5, PayStream bought 50,000 shares in DataCo for D3 each, irrevocably designating them at Fair Value Through OCI (FVTOCI). At 31 December 20X5, the shares traded at D3.50. On 1 November 20X5, PayStream bought servers from a US supplier for $100,000 USD. Exchange rates: 1 Nov: $1 = D0.80; 31 Dec: $1 = D0.85. The invoice is unpaid at year-end. *Question:* How is the D25,000 increase in the value of the DataCo shares treated in the financial statements for the year ended 31 December 20X5?

**Section A** FinTech Solutions factored $2 million of its trade receivables to a bank. The bank advanced $1.8 million immediately and charged a non-refundable fee of $50,000. Under the agreement, FinTech Solutions guarantees to reimburse the bank for any receivables that default (factoring with recourse). How should FinTech Solutions account for this transaction in its statement of financial position?

**Section B - Case 3: AgriCorp** *Scenario:* AgriCorp owns vineyards and a grape processing plant. On 1 January 20X4, the carrying amount of the grapevines (bearer plants) was $5,000,000. The fair value of the grapes growing on the vines was $500,000. On 31 December 20X4, AgriCorp harvested the grapes. The fair value less costs to sell of the harvested grapes was $800,000. On 1 January 20X4, AgriCorp received a government grant of $1,000,000 to purchase a specialized eco-friendly tractor costing $4,000,000. The tractor has a useful life of 5 years. AgriCorp accounts for grants by deducting them from the carrying amount of the asset. AgriCorp also holds a portfolio of corporate bonds purchased for $2,000,000 on 1 January 20X4. The business model is to hold the bonds to collect contractual cash flows (principal and interest). At 31 December 20X4, the 12-month expected credit loss (ECL) is $50,000, and the lifetime ECL is $200,000. There has been no significant increase in credit risk since initial recognition. *Question:* How should the corporate bonds be classified and measured under IFRS 9?

**Section B - Case 3: AgriCorp** *Scenario:* AgriCorp owns vineyards and a grape processing plant. On 1 January 20X4, the carrying amount of the grapevines (bearer plants) was $5,000,000. The fair value of the grapes growing on the vines was $500,000. On 31 December 20X4, AgriCorp harvested the grapes. The fair value less costs to sell of the harvested grapes was $800,000. On 1 January 20X4, AgriCorp received a government grant of $1,000,000 to purchase a specialized eco-friendly tractor costing $4,000,000. The tractor has a useful life of 5 years. AgriCorp accounts for grants by deducting them from the carrying amount of the asset. AgriCorp also holds a portfolio of corporate bonds purchased for $2,000,000 on 1 January 20X4. The business model is to hold the bonds to collect contractual cash flows (principal and interest). At 31 December 20X4, the 12-month expected credit loss (ECL) is $50,000, and the lifetime ECL is $200,000. There has been no significant increase in credit risk since initial recognition. *Question:* What amount should be recognized as a loss allowance for the corporate bonds at 31 December 20X4?