Duakwanta is a listed company which manufactures personal computers (PCs). It is preparing its financial statements for the year ended 31 May 2019 and would like to seek advice on the following accounting issue: During the year, Duakwanta issued a debt finance to the financial markets to fund its expansion plans. This was a very significant debt issue for Duakwanta. After the issue, the market price of each block of debt on the market fell by approximately 10%. The financial press has stated that the reason for the fall is due to an increase in the company's credit risk, as the market players are worried by the size of the interest payments on Duakwanta's operating cash flows. Required: Advise the directors as to the financial reporting issues arising from the above scenario and explain the appropriate treatment in Duakwanta’s financial statements.
Duakwanta is a listed company which manufactures personal computers (PCs). It is preparing its financial statements for the year ended 31 May 2019 and would like to seek advice on the following accounting issue: During the year, Duakwanta issued a debt finance to the financial markets to fund its expansion plans. This was a very significant debt issue for Duakwanta. After the issue, the market price of each block of debt on the market fell by approximately 10%. The financial press has stated that the reason for the fall is due to an increase in the company's credit risk, as the market players are worried by the size of the interest payments on Duakwanta's operating cash flows.
Required:
Advise the directors as to the financial reporting issues arising from the above scenario and explain the appropriate treatment in Duakwanta’s financial statements.
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