Question

Milk Ltd has the following financial instrument issued: 1) On 1 April 2018 an 8% £30 million convertible loan note was issued at par. Interest is payable in arrears on 31 March each year. The loan note is redeemable at par on 31 March 2021 or convertible into equity shares at the option of the loan note holders on the basis of 30 shares for each £100 of loan. A similar instrument without the conversion option would have an interest rate of 10% per annum. Milk Ltd has the following financial instruments purchased: 2) In January 2018, Milk Ltd purchased 20 million £1 listed equity shares at a price of £2 per share. The shares were bought as a source of dividend income and were the subject of an irrevocable election at initial recognition to recognise them at fair value through other comprehensive income. Transaction costs were £3m. At 31 December 2018, the shares were trading at £2.50. On 31 December 2018 Milk Ltd received a dividend of from these shares of 5p per share. 3) In March 2016, Milk Ltd purchased 5 million £3 listed bond and classified it as an investment financial instrument within "held to collect and sell" business model. The current market value of bonds is £8.65 million, while they were bought for £14.3 million. 4) On 1 January 2017, Milk Ltd purchased a zero-coupon three year bond for £1.5 million and classified it as an investment financial instrument within "held to collect” business model. Effective interest rate of this bond is 8%. SPPI test is passed. Current market rates for such bonds are 10%. At 31 December 2018, Milk Ltd is not expecting the last year's interest and expects only half of the amortised cost. How should the financial instruments of Milk Ltd be accounted for in the statement of financial position of Milk Ltd at 31 December 2018?

Answer 1

Answer: - - Accounting of Staneet . al financial 9! ecember 2018: financial instruments in Position of Milk ltd. at O Convertible loan note issued at Par con 1 April 2018 and Sodeemabio on 315 March 2021 allowted in financial statement as long-term liability debt and The interest of a month also auounted as interest payable (current liability in financial Statement S so, an 31st december 8% L. 30 million convertible loan not showen as long-room dett because of its 3 year maturity team and the amount of f 1.8 million [ £30 million x go for a month) is occourteed or shown as Interest Payable as current lability in Financial statement of Milk ltd. ® Purchase of equity share at a price of a per share increase the asset by decrease in cash and on 31st december Trading of stock at Price of £2.50 c so million x2 2.50), The amount of e 50 million increase the cash / Bank of Milk tel. on other hand dueidend income of spaise per share considered as an asset and shown accouated in Financial statement. O so. The amount of Trading f so mellion and f 1 million for dividend [Lomellion xo.s] accounted as current asset in financial statement resulting increase in cash Bark by f5 1 million in mich Halo financial statement as on 31st december 2018..niminirani

[ When financial instrument inestment within held to collect and sale business model , then the iwestment is accounted at, fair value. Then the Bond which is bought for £ 1103 minion accounted at £8.65 million on Financial Statemért er Melk (tel. Purchased ar Zero - Laupen thell year Band for £ los million classified as imeest eat "held to collect" valued in financial statement at carrying amount / amortised cost. So here company expect half of amortised cost then zero coupon bond accounted as an asset amounting of 75 cro in financial statement of milk ltd. as an 3155 december, 2018. Note : IFRS9. answering. Considered & applicable for