Reference no: EM132469397

cagoggiolat has the following financial instruments:

(I) cluppgyinber issued a debt instrument on 1 January 2019 at its par value of S3 million. Issue costs relating to the transaction were $200,000. The debt pays a fixed annual return of 6%. The principal amount will be repaid in 4 years' time at a premium of $400.000. The debt has an effective rate of interest of 11%.

(ii) Widow!'Jar acquired 100.000 shares in Roigish, on 15 August 2019 for $6 per share. The investment resulted in Quoocumber holding 4% of the equity shares in 13,0040. The related transaction costs were 524.000. Radlisti',% shares were trading at $6.80 on 31 December 2019. The investment has been classified as held for trading.

• Quoocumber issued 300,000 S1 ordinary shares at $2.50 on 30 September 2019. Issue costs totalled $75.000.

Required

Question (a) Calculate the amounts at which each of the financial instruments should be initially recorded in the financial statements of Quoocumber.

Question (b) Prepare the extracts from Quoocumber's financial statements for the year ended 31 December 2019, clearly showing the amounts to be included for the three financial instruments.

Question (c) If the debt instrument had contained an option to convert into ordinary shares on redemption, explain how the instrument would be initially recorded in the financial statements.

Question (d) Explain why the effective rate of interest on the debt instrument is 110/0 when the annual return is 6%.