ACCT 420.
SPECIAL TOPICS IN ACCOUNTING
Anas Kossentini, Ph.D, M-MBA
TOPIC 2. FINANCIAL INSTRUMENTS (EXERCISES, PART 2)
QUESTION 1
Rory owns two financial asset investments in the shares of listed companies. Details of which are as
follows:
Investment 1: Acquired 1 September 2015 at a cost of $50,000 for the purpose of trading. Its
fair value at the yearend is $60,000.
Investment 2: Acquired 1 August 2015 at a cost of $25,000 to hold indefinitely. Its fair value at
the year-end is $20,000.
What are the amounts to appear in the financial statements for the year ended 30 September 2015?
o SFP: $60,000; SPL: $10,000 gain; SCI: nil.
o SFP : $20,000; SPL : nil ; SCI : ($5,000) loss.
o SFP: $80,000; SPL: $5,000 gain; SCI: nil.
o SFP: $80,000; SPL: $10,000 gain; SCI: (5,000) loss.
QUESTIONS 2
Bobby bought 100,000 shares in a listed company on 1 May 2018 for $420,000, incurring transaction
costs of $10,000. The shares were not acquired for the purpose of trading but to realize the gains in
the future. On the 30 June 2018 reporting date, the fair value of a share was $5.10.
What are the amounts to appear in the financial statements for the year ended 30 June 2018?
o SFP: $510,000; SPL: $80,000 gain.
o SFP: $430,000; SPL: $10,000 gain.
o SFP: $510,000; SPL: nil.
o SFP: $420,000; SPL: nil.
QUESTION 3
On 1 January 2017, Andy issued 100,000 3% debentures at a 3% discount on the par value of $100. The
debentures are redeemable at a premium of 5% in three years’ time. The effective rate of interest on
the debentures is 5.71%.
Calculate the finance costs to be shown in the statement of profit or loss for the year ended 31
December 2017.
o $291,000.
o $300,000.
o $571,000.
o $553,870.
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ACCT 420. SPECIAL TOPICS IN ACCOUNTING
Anas Kossentini, Ph.D, M-MBA
QUESTION 4
Trent issued a $5 million 4% convertible bond at 1 January 2017 at par value. The bond is redeemable
at par on 31 December 2020 or can be converted at that date to one ordinary share for every $100 of
bonds held.
The market rate of interest on similar debt without the conversion option is 6%.
The present value of $1 receivable at the end of each year, using discount rates of 4% and 6% are as
follows:
End of year 4% 6%
1 0.96 0.94
2 0.92 0.89
3 0.89 0.84
4 0.85 0.79
Calculate the value to be credited to equity on 1 January 2017.
o $358,000.
o $4,642,000.
o $4,974,000.
o $26,000.
