International Financial Reporting Standards_guide.pdf

Chapter 17 Financial Instruments: Recognition and Measurement (IAS 39) 209
17.8.12 Determining whether an embedded derivative is closely related to the host contract
may require some judgment.
17.8.13 Impairment losses for instruments designated as available for sale are calculated
differently from those that are classified as loans and receivables and held to maturity.
EXAMPLES: FINANCIAL INSTRUMENTS—RECOGNITION AND MEASUREMENT
EXAMPLE 17.1
An entity receives $100 million equity in cash on July 1, 20X5.
It invests in a bond of $100 million par at a clean price of $97 million and a 5 percent fixed
coupon on July 1, 20X5.
Coupons are paid annually, and the bond has a maturity date of June 30, 20X7. The yield to
maturity is calculated as 6.6513 percent.
On June 30, 20X6, the entity receives the first coupon payment of $5 million. The clean market
value of the security has increased to $99 million at June 30, 20X6. The security has not been
impaired and no principal has been repaid.
Using the effective interest method, the $3 million discount is amortized $1.45 million in year
1 and $1.55 million in year 2.
17.1.A
17.1.B
17.1.C
Illustrate how this situation will be portrayed in the entity’s Statement of Financial
Position, as well as its Statement of Comprehensive Income—under each of the following
three accounting policies for marketable securities: assets held for trading
purposes, assets available for sale, assets held to maturity.
Discuss the treatment of discounts or premiums on securities purchased in the
financial statements of the entity.
If these securities were denominated in a foreign currency, how would translation
gains and losses be treated in the financial statements of the entity?
Source: Hamish Flett—Treasury Operations, World Bank.