Saturday, September 06, 2008
4:47 PM...............................................................................
I need a drink.
B.13 Definition of held-to-maturity financial assets: index-linked principal.
Entity A purchases a five-year equity-index-linked note with an original issue price of CU10 at a market price of CU12 at the time of purchase. The note requires no interest payments before maturity. At maturity, the note requires payment of the original issue price of CU10 plus a supplemental redemption amount that depends on whether a specified share price index exceeds a predetermined level at the maturity date. If the share index does not exceed or is equal to the predetermined level, no supplemental redemption amount is paid. If the share index exceeds the predetermined level, the supplemental redemption amount equals the product of 1.15 and the difference between the level of the share index at maturity and the level of the share index when the note was issued divided by the level of the share index at the time of issue. Entity A has the positive intention and ability to hold the note to maturity.
Can Entity A classify the note as a held-to-maturity investment?
Yes. The note can be classified as a held-to-maturity investment because it has a fixed payment of CU10 and fixed maturity and Entity A has the positive intention and ability to hold it to maturity (FRS 39.9). However, the equity index feature is a call option not closely related to the debt host, which must be separated as an embedded derivative under FRS 39.11. The purchase price of CU12 is allocated between the host debt instrument and the embedded derivative. For example, if the fair value of the embedded option at acquisition is CU4, the host debt instrument is measured at CU8 on initial recognition. In this case, the discount of CU2 that is implicit in the host bond (principal of CU10 minus the original carrying amount of CU8) is amortised to profit or loss over the term to maturity of the note using the effective interest method.
CU 2. Part of debt. Cause you amortize to profit. ( i have no idea what u mean by amortize to profit)
haha.
Bond is financial asset as it is a loan. Yes...a loan is an asset. So can amortize!!!!!! - that i get. muhaha. Pathetic!
B.13 Definition of held-to-maturity financial assets: index-linked principal.
Entity A purchases a five-year equity-index-linked note with an original issue price of CU10 at a market price of CU12 at the time of purchase. The note requires no interest payments before maturity. At maturity, the note requires payment of the original issue price of CU10 plus a supplemental redemption amount that depends on whether a specified share price index exceeds a predetermined level at the maturity date. If the share index does not exceed or is equal to the predetermined level, no supplemental redemption amount is paid. If the share index exceeds the predetermined level, the supplemental redemption amount equals the product of 1.15 and the difference between the level of the share index at maturity and the level of the share index when the note was issued divided by the level of the share index at the time of issue. Entity A has the positive intention and ability to hold the note to maturity.
Can Entity A classify the note as a held-to-maturity investment?
Yes. The note can be classified as a held-to-maturity investment because it has a fixed payment of CU10 and fixed maturity and Entity A has the positive intention and ability to hold it to maturity (FRS 39.9). However, the equity index feature is a call option not closely related to the debt host, which must be separated as an embedded derivative under FRS 39.11. The purchase price of CU12 is allocated between the host debt instrument and the embedded derivative. For example, if the fair value of the embedded option at acquisition is CU4, the host debt instrument is measured at CU8 on initial recognition. In this case, the discount of CU2 that is implicit in the host bond (principal of CU10 minus the original carrying amount of CU8) is amortised to profit or loss over the term to maturity of the note using the effective interest method.
CU 2. Part of debt. Cause you amortize to profit. ( i have no idea what u mean by amortize to profit)
haha.
Bond is financial asset as it is a loan. Yes...a loan is an asset. So can amortize!!!!!! - that i get. muhaha. Pathetic!
