Question - On 1 Jan 2017, Entity A purchased a bond, Bond X, for $1,000,000 which is measured at amortised cost. Interest of 10% is payable in arrears. Repayment is due on 31 Dec 2019. The effective rate of interest is 10%. The 12-month expected credit loss is NIL.
On 31 Dec 2017, Entity A received interest of $100,000. However, based on a report from the credit department, Entity A estimated that Bond X is credit-impaired and no further interest will be received in the next two years and that only 50% of the redemption value will be repaid on 31 Dec 2019. Thus, the lifetime expected credit loss of Bond X is equivalent to the present values of the expected cash shortfalls after 31 Dec 2017.
Evaluate the lifetime expected credit loss of Bond X on 31 Dec 2017.
On 31 Dec 2017, Bond X was credit-impaired, evaluate the net carrying amount of Bond X on 31 Dec 2017.
Evaluate the interest income of Bond X recognised to Profit or Loss for the year of 2018.