On January 1, 2018, CHE Co. purchased 12% bonds, having a maturity value of P800,000, for P860,652 including transaction cost of P110,000. The bonds provide the bondholders with a 10% yield, are dated January 1, 2018, and mature January 1, 2023, with interest receivable December 31 of each year. CHE’s business model is to hold these bonds to collect contractual cash flows solely for payment of principal and interest and therefore designate such debt investment at amortized cost. On December 31, 2020 after paying the accrued interest, the issuer of bonds completed a negotiation with its creditors to reduce the interest from 12% to 8% for the remaining term of the bond due to continuous decline in the market rate of interest. The present value of 1 at 10% for 2 periods is 0.8264 while the present value of annuity of 1 at 10% for 2 periods is 1.7355. How much is the carrying value/amortized cost of the debt investment at December 31, 2018?
On January 1, 2018, CHE Co. purchased 12% bonds, having a maturity value of P800,000, for P860,652 including transaction cost of P110,000. The bonds provide the bondholders with a 10% yield, are dated January 1, 2018, and mature January 1, 2023, with interest receivable December 31 of each year.
CHE’s business model is to hold these bonds to collect contractual cash flows solely for payment of principal and interest and therefore designate such debt investment at amortized cost.
On December 31, 2020 after paying the accrued interest, the issuer of bonds completed a negotiation with its creditors to reduce the interest from 12% to 8% for the remaining term of the bond due to continuous decline in the market rate of interest. The present value of 1 at 10% for 2 periods is 0.8264 while the present value of annuity of 1 at 10% for 2 periods is 1.7355.
- How much is the carrying value/amortized cost of the debt investment at December 31, 2018?
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