On 30 June 2017, James Inti purchased government bonds for $535,000 and 5% share

Question

On 30 June 2017, James Inti purchased government bonds for $535,000 and 5% shares of Connor Ltd, one of its providers, for $47,000.

REQUIRED

Explain the two necessary conditions for which James Inti is allowed to measure the government bonds at amortised cost

Identify whether the 5% shares acquired by James Inti are a financial assets, financial liability or an equity instrument of Connor Ltd

Explanation / Answer

Two Conditions for measuring the government bonds at amortised cost:

1. The business model is held to maturity

2. Cash Inflows are solely for Interest & Principal.

5% shares in Conno Ltd acquired by James Inti are equity instruments of Connor Ltd.

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