Question
On January 1, 2026 Ashcombe Capital bought $100,000 face value of another company's 3-year, 5% bonds for $94,751, a price that gives an effective yield of 7%. Interest is received every December 31.
Ashcombe holds the bonds to collect their contractual cash flows, which are solely payments of principal and interest, so under IFRS 9 they are measured at amortised cost. At December 31, 2026 the bonds' fair value is $96,000. Ignore expected credit losses. Round to the nearest dollar.
Required:
- Journal Entries — the purchase and the December 31 interest receipt. Use Debt Investments at Amortised Cost, Interest Income and Cash.
- Carrying Amount — the carrying amount of the bonds at December 31, 2026.
- Fair Value — what, if anything, to do about the $96,000 fair value.
Statements in this challenge
- Journal EntriesJournal Entry
- Carrying AmountNumeric Answer
- Fair ValueMCQ Quiz
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IFRS 9 — Financial Instruments
Classification drives the accounting, so settle it first: amortised cost, fair value through profit or loss, or fair value through other comprehensive income. Only then decide where remeasurement gains and losses land, because the same price movement is reported in different places under different classifications.
Common mistakes
- Routing a fair value movement through profit or loss when the instrument is measured at FVOCI, or the reverse.
- Capitalising transaction costs on an instrument held at fair value through profit or loss, where they are expensed.
- Forgetting to remove the cumulative gain or loss from equity on the disposal of an FVOCI investment.
Further readingIFRS 9: measuring financial instruments