Ifrs 9 Questions

Financial Instruments
SLIDES PREPARED AND PRESENTED BY

NELSON PANDE
Example
On 1 January 20X5 a 5% loan note is issued for
$5,000. The loan is redeemable after three years at
a premium of $487, giving an effective rate of
interest of 8%. Interest is paid annually in arrears.
Required:
Show how the value of the loan note changes over
its life.
Pass Tuition Centre 3

Practice Question
An entity issues 4% loan notes with a nominal value of
$20,000. The loan notes are issued at a discount of
2.5% and $534 of issue costs are incurred. The loan
notes will be repayable at a premium of 10% after 5
years. The effective rate of interest is 7%. Interest is
payable annually in arrears.
1. What amount will be recorded as a financial liability

when the loan notes are issued?
2. What amounts will be shown in the statement of
profit or loss and statement of financial position for
year 1?
Kitana issues 3,000 convertible bonds at the start
of 2010. The bonds have a three year term, and are
issued at par with a face value of $1,000 per bond,
giving total proceeds of $3,000,000. Interest is
payable annually in arrears at a nominal annual
interest rate of 6%.
Each bond is convertible at any time up to maturity
into 300 ordinary shares. When the bonds are
issued, the prevailing market interest rate for
similar debt without conversion options is 9%.
Required
Show how these bonds should be accounted for in
the financial statements at 31 December 2010
A company issues $20m of 4% convertible loan
notes at par on 1 January 2009. The loan notes are
redeemable for cash or convertible into equity
shares on the basis of 20 shares per $100 of debt
at the option of the loan note holder on 31
December 2011. Similar but non-convertible loan
notes carry an interest rate of 9%.
Required
Show how these loan notes should be accounted
for in the financial statements at 31 December
2009

An 8% $30 million convertible loan note was issued on 1 April 20X5 at
par. Interest is payable in arrears on 31 March each year. The loan
note is redeemable at par on 31 March 20X8 or convertible into
equity shares at the option of the loan note holders on the basis of
30 shares for each $100 of loan. A similar instrument without the
conversion option would have an interest rate of 10% per annum.
The present values of $1 receivable at the end of each year based on
discount rates of 8% and 10% are:
8% 10%
End of year
1 0.93 0.91
2 0.86 0.83
3 0.79 0.75
What amount will be credited to equity on 1 April 20X5 in respect of
this financial instrument?
A $5,976,000
B $1,524,000
C $324,000
D $9,000,000 Pass Tuition Centre 7
A 5% loan note was issued on 1 April 20X0 at its face
value of $20 million. Direct costs of the issue were
$500,000. The loan note will be redeemed on 31
March 20X3 at a substantial premium. The effective
interest rate applicable is 10% per annum.
At what amount will the loan note appear in the
statement of financial position as at 31 March 20X2?
A $21,000,000
B $20,450,000
C $22,100,000
D $21,495,000 Pass Tuition Centre 8
Dexon's draft statement of financial position as at 31
March 20X8 shows financial assets at fair value
through profit or loss with a carrying amount of
$12.5 million as at 1 April 20X7. These financial
assets are held in a fund whose value changes
directly in proportion to a specified market index. At
1 April 20X7 the relevant index was 1,200 and at 31
March 20X8 it was 1,296.
What amount of gain or loss should be recognised at
31 March 20X8 in respect of these assets?
A $1,000,000 gain
B $96,000 gain
C $1,000,000 loss
D $96,000 loss Pass Tuition Centre 9
Which of the following are not classified as financial
instruments under IAS 32 Financial Instruments:
Presentation?
A Share options
B Intangible assets
C Trade receivables
D Redeemable preference shares

A company invests $5,000 in 10% loan notes. The
loan notes are repayable at a premium after 3
years. The effective rate of interest is 12%. The
company intends to collect the contractual cash
flows which consist solely of repayments of
interest and capital and have therefore chosen to
record the financial asset at amortised cost.
What amounts will be shown in the statement of
profit or loss and statement of financial position
for the financial asset for years 1–2?

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Financial Instruments

SLIDES PREPARED AND PRESENTED BY

Pass Tuition Centre 3

1. What amount will be recorded as a financial liability

Pass Tuition Centre 6

Pass Tuition Centre 10

Pass Tuition Centre 11

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