Reference no: EM132625991
Question - Zian Page Ltd is a listed company on Namibian stock exchange since incorporation, the company that owns several hotels and guest houses throughout Namibia. The company has a 30 June year end. You are a technical accountant for Zian Page, as you were on sick leave and you were booked off by the doctor for the month of June 2020, you have instructed your Junior accountant Mark to prepare the journal for the financial year end 30 June 2020 as the year was about to end in order not to miss the deadline of reporting as the year end is approaching.
Although Mark could do most of his work on time and very well. There were some of the items that he was unsure of how to treat some of the information that you provided to him as well as the accounting implication on them, below are some of the issues he has raised for you to review:
The long-term plan for the company is to expand its growth by owning guest houses and hotels throughout the country. The outbreak of Corvid 19 came as a shock to them as their peak season for visitors is usually the month of March to June. Given the travel ban, Zian Page could not raise funds to meet this goal.
In order to raise funds and make sure that the company sticks to its growth as planned management of Zian Page Ltd decided to issue 2 500, 10.5% convertible debenture to Colacola Ltd for N$ 1000 each on the 01 January 2020. The debentures are convertible into a fixed number of 1 ordinary share for each debenture held on 31 December 2025. Conversion is at the option of Colacola Ltd. Zian Page incurred the additional legal cost of N$ 2500 to facilitate the transfer of the debentures to Colacola.
Similar debentures without conversion have a market rate of 12.5% Mark informed you that he is unsure on how to treat the issue of debentures, he is really not sure on how to treat this transaction, but he said "I tried".
Upon reviewing his work, you have noted that Mark has only performed the journal entries below and there are some errors that you have to correct to make sure that the journal is complete. The journal entries he processed are below:
Dr Bank (SFP) 2 500 000
Cr Liability (SFP) 2 500 000
(Proceeds from the issue of debentures to Colacola)
Dr Operating expenses (P/L)
Cr Bank (SOFP) 2 500
(Cost incurred in the issue of debentures to Colacola)
As an expert in IAS 32 and IFRS 9 you have noted that there was issues with the journals processed by Mark, and the financial manager requested you to please adjust the record to ensure that information presented is in compliance with applicable IFRS.
Required -
1. Write a Memo to the finance team of Zian Page Ltd as a technical accountant explaining to them the classification and measurement of the arrangement above.
2. Calculate and correctly journalize the above transaction in compliance with the applicable IFRSs.
3. Prepare the extract Statement of profit or loss and other comprehensive income, and Extract Statement of Financial position for the Colacola for the year ended 30 June 2020 to reflect the effect of the transaction.