FRS 109: FINANCIAL INSTRUMENTS PART 11 SARDOOL: 08171 Department of Accounting NUS Business School National University of Singapore ACC3606 ADVANCED CORPORATE ACCOUNTING AND REPORTING Semester 1, 2017/2018 LECTURE OUTLINE: FINANCIAL INSTRUMENTS The lecture on financial instruments will cover 3 standards: FRS 32 : Financial instruments: Presentation FRS 109 : Financial instruments FRS 107 : Financial instruments : Disclosure Please note that you will not be tested on embedded derivatives, financial guarantee contracts, commitments to provide a loan at a below-market interest rate and contingent consideration. You are expected to prepare for the tutorials by completing the following questions from the prescribed textbook. Please change any reference to IAS 39 to FRS 109. Chapter 9: • Concept questions 9.1 to 9.5 • Problems • 9.1 • 9.8 Please note the following error in your textbook – Bond A matures on 30 June 20x4 and not 20x3. The bonds are classified as Amortised Cost. Ignore references to HTM. • 9.9 The shares are classified as FVTOCI (irrevocable choice). Ignore references to AFS. Additional questions: 1.Parkway Hospitals have a patient receivable from an insurance company, XO Pte Ltd. The amount outstanding was $500,000, carried an interest rate of 8% and was repayable in two years on 31 December 2018. Interest has been paid promptly. However, XO is now experiencing financial difficulties and has reached a restructuring plan with Parkway on the following terms on 31 December 2018. Assume that the credit allowance account balance stood at $250,000 at 31 December 2018. i. The loan was reduced to $200,000 and was repayable on 31 December 2020. ii. Interest was reduced to 5% p.a. payable on 31 December each year. a. What is the impairment loss incurred by Parkway for the year ended 31 December 2018 ? b. Prepare journals and prepare a table to show the interest income recognized for 2019 and 2020.
FRS 109: FINANCIAL INSTRUMENTS PART 12 SARDOOL: 08172 2. Assume that Shenton Pte Ltd purchased a debt instrument for $102,000 on 1/1/2016 i.e. at the beginning of financial year ending 31/12/16 and is evaluating the impact of presenting the instrument in EACH of the three FRS 109 categories for financial assets. Prepare journal entries, to the nearest dollar, with narratives with supporting schedules or tables showing how the debt instrument will be recorded in each of the 3 different scenarios for all the six periods, based on the following assumptions: i. remaining life of the bond - 3 years. ii. Interest @ 4% p.a. payable semi-annually i.e. $2,000 per half yearly. iii. amount repayable on maturity - $100,000 iv. other information given in the table below Period Fair value Significant increase in credit risk 12 month Expected Credit Losses Lifetime Credit Losses Probability of default Potential loss 300616 311216 300617 311217 300618 311218 104,000 103,000 70,000 85,000 95,000 100,000 N N Y Y N N 5% 7% 5% 10% 10% 5% 40,000 20,000 Assume that the bond is not credit impaired at any point.
FRS 109: FINANCIAL INSTRUMENTS PART 13 SARDOOL: 08173 INDEX Contents Page 1. Identification of financial instruments 4 2. Financial Instruments 5 3. Initial Measurement of Financial Instruments 6 4. Classification of Financial Assets 7 (a)