10. On 1 January 2009 a company that prepares its
10. On 1 January 2009, a company that prepares its financial statements according to IFRS issued bonds with the following features:
·Face value ￡20,000,000
·Term 5 years
·Coupon rate 6% paid annually on December 31
·Market rate at issue 4%
The company did not elect to carry the bonds at fair value. In December 2011 the market rate on similar bonds had increased to 5% and the company decided to buy back (retire) the bonds after the coupon payment on December 31. As a result, the gain on retirement reported on the 2011 statement of income is closest to:
A. ￡340,410.
B. ￡371,882.
C. ￡382,556.
参考解答
456***100
2024-11-06 14:28:48
Ans. C.
The market value of debt at retirement can be determined by discounting the future cash flows at the current market rate (5%) using a financial calculator:
FV = 20,000,000; i = 5%; PMT = 1,200,000; N = 2; Compute PV = 20,371,882
The book value after the third interest payment (two payments remaining) can be found either using a financial calculator and the market rate at the time of issue (4%) or an amortization table (shown below).
FV = 20,000,000; i = 4%; PMT = 1,200,000; N = 2; Compute PV = 20,754,438.
The bond’s initial value (required for amortization) can be found using a financial calculator:
FV = 20,000,000; i = 4%; PMT = 1,200,000; N = 5; Compute PV = 21,780,729.
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