Question

On 1 June 2023 Safe Boards Ltd invested in five hundred 7 per cent, ten-year Teleco...

On 1 June 2023 Safe Boards Ltd invested in five hundred 7 per cent, ten-year Teleco bonds with a face value of $100 each. The bonds were issued at face value. On 30 June 2023, the Teleco bonds, which are traded in an active market, had a market value of $105. Answer each part independently.

a) State whether Safe Boards Ltd can classify the Teleco bonds as being measured at amortised cost. If measured at amortised cost, give the amount at which the bonds should be reported in the statement of financial position at 30 June 2023. (2.5 marks)

b) If the bonds were acquired for speculative purposes, give the amount at which the bonds should be reported in the statement of financial position at 30 June 2023. If a change in fair value is recognised, where should it be recognised? (2.5 marks)

Homework Answers

Answer #1

Answer:

A. Safe Boards can classify the Telco bonds as being measured at amortized cost if it intends to and has the ability to hold the bonds until their maturity.

The amortized cost at which the bonds should be reported in the statement of financial position at 30 June 2023 is

500 x $100 = $50,000.

B. If the bonds were acquired for speculative purposes, the same should be reported in the statement of financial position at 30 June 2023 at their fair market value which is

500 x $105 = $52,500.

The change in fair value on trading securities should be recognized in the income statement as an unrealized gain.

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