The amortised cost schedule

Learning objectives

• Prepare the amortised cost schedule: opening amount, interest at the effective rate, cash received or paid, closing amount.L2, L3
• Calculate, from the data of a case, the amounts relating to the amortised cost schedule.L2, L3
• Record the journal entries for the amortised cost schedule and measure their effect on the financial position, profit or loss and other comprehensive income.L2, L3

Normative references

• IFRS 9 §5.4.1Interest revenue: effective interest method applied to the gross carrying amount, except (a) for purchased or originated credit-impaired financial assets, to which the credit-adjusted effective interest rate is applied to the amortised cost from initial recognition, and (b) for assets that subsequently became credit-impaired, to which the effective interest rate is applied to the amortised cost (net of the loss allowance) in subsequent reporting periods. The return to the gross basis is governed by para. 5.4.2.
• IFRS 9Appendix A (amortised cost terms): the gross carrying amount is the amortised cost of a financial asset before adjusting for any loss allowance; the effective interest rate exactly discounts estimated future cash flows through the expected life of the instrument, considering all its contractual terms (prepayment, options); the credit-adjusted effective interest rate of purchased or originated credit-impaired (POCI) assets also takes expected credit losses into account; the modification gain or loss is the amount arising from adjusting the gross carrying amount to reflect the renegotiated or modified cash flows; the reclassification date is the first day of the first reporting period following the change in business model.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• Nord SA granted a loan of {loan_amount} on 1 January, measured at amortised cost; its initial fair value equals the amount lent. The annual effective interest rate given by the case is {effective_rate}. The annual coupon of {coupon} is received on 31 December. The two-year loan is repaid on 31 December of the second year for {redemption}, in addition to the last coupon. Calculate the interest income for the first year and the carrying amount at 31 December.L2
• Boréal SA acquired bonds on 1 January N for {purchase_price}, an amount equal to their fair value, and measures them at amortised cost. The annual effective interest rate given by the case is {effective_rate}; a coupon of {coupon} is received every 31 December. The three-year bonds are redeemed on 31 December N+2 for {redemption}, in addition to the last coupon. Calculate the interest income for year N+1 and the carrying amount at 31 December N+1.L3
• Zeta SA granted a loan of {loan_amount}, measured at amortised cost; the annual effective interest rate given by the case is {effective_rate} and the annual coupon of {coupon} is received at the end of the year. The two-year loan is repaid at the end of the second year for {redemption}, in addition to the last coupon. Record the entries for the first year: first the interest at the effective rate, then the receipt of the coupon.L2