School of Business and Economics

Department of Accounting & Finance

Course Title: Intermediate Accounting

Course Code: ACT320
Section: 02
Part 1:
“Investment”
Submitted To:
Rakibul Hasan, CPA, CMA
Initial: RKB

Submitted By:
Name ID
Antor Podder 1721325030

Date of Allocation: 18th May, 2020

Date of Submission: 4nd June, 2020
Answer:
The bond I have purchased has a fair value of 3,000,000TK with a coupon rate of 11%, held to
maturity is of 5 years which is 10 periods.
So, now the journal entry for the investment is:
Dr. HTM security 3,000,000
Cr. Cash 3,000,000
Face Value 3,000,000 Semi Interest 4.5%
Interest Rate 9% Periods 10
Years 5 Coupon Rate 5.5%
Coupon 11%

  Principle Interest Total

1,305,59
PV 1,931,783 8 3,237,382

Discount Carrying
 Perio Cash Interest
Date Amortizatio Amount
d Paid Expense
n of Bond
  1/5/2019       3,237,382
165,0
1 7/1/2019 00 145682 -19318 3,218,064
12/31/201 165,0
2 9 00 144813 -20187 3,197,877
165,0
3 4/1/2019 00 143904 -21096 3,176,781
495,0
TOTAL 00 434399 -60601  

Before April 1, I have an interest revenue of 165,000TK each period. Because of the pandemic
the market interest rate has fallen to 9% and the coupon rate has fallen to 6%. So, I have decided
to sell my investment and invest the money into another sector which would be more profitable.
If I keep my investment in the existing sector or company, the bond price will be (the
calculation is given below):
Face Value 3,176,781 Semi Interest 4.5%
Interest Rate 9% Periods 10
Years 5 Coupon Rate 3%
Coupon 6%
   Principle Interest Total

PV 2,045,617 754,109 2,799,726

Discount Carrying
 Perio Cash Interest
Date Amortizatio Amount
d Paid Expense
n of Bond

  7/1/2020       2,799,726
95,30
4 1/1/2020 3 125,988 30,684 2,830,411

5 1/1/2021 95,303 127,368 32,065 2,862,476

12/31/202
6 1 95,303 128,811 33,508 2,895,984

7 1/1/2022 95,303 130,319 35,016 2,931,000

12/31/202
8 2 95,303 131,895 36,592 2,967,591

9 7/1/2023 95,303 133,542 38,238 3,005,829

12/31/202
10 3 95,303 135,262 39,959 3,045,788

TOTAL 667,124 913,186 246,062  

We can see the carrying value of the investment has fallen to 2,799,726TK in the condition. So,
it’s better to find a sector which is booming their business in the middle of the pandemic. Before
shifting the investment, there will be some journal entries.
Suppose, we sold the bond on April 1, 2020. Carrying value would be 3,176,781TK
Dr. Cash 3,176,781
Cr. Interest revenue 21,096
Cr. Gain on sale 155,685
Cr. HTM security 3,000,000
There is another option of converting the bonds into 200,000 common shares with a fair
value of BDT16 in the company. As we have already seen that because of the COVID19
situation, the return of the bond has declined. So, this is not the right place to get a high
retune in this company.
If I convert the bond the journal would be:
Dr. Common shares (INVESTMENT) (200,000 x 16) 3,200,000
Cr. Gain on conversion 23,219
Cr. Cash 3,176,781
As economies around the world are suffering from the impact of Covid-19, businesses are
experiencing losses, workers are without jobs, and many faces the challenge of a
complete upheaval of lifestyle. However, pharmaceutical companies are taking in the
middle situation of the Covid-19 fight and seeing positive growth on the stock market.
The companies are also making a new burst of innovation in the infectious disease
landscape as the race for treatment approval for a Covid-19 therapy takes off.
So, it’s better I invest money to a pharmaceutical company where there is a higher demand for
pharmaceutical products and better return from my investment. In Bangladesh, Beximco Pharma
is one of the prominent pharmaceutical companies. The company recently introduced world’s
first generic Remdesivir for COVIR19 treatment. So, I can expect a good return in next few
years.
Total number of outstanding securities of Beximco = 876,318,879
Face/per value = 10.0
Last trading price = 13.70
I can buy (3,176,781TK/13.70)
= 231,882 shares
The stock dividends in several recent years are 5% 2018, 5% 2017, 15% 2016, 15% 2014, 15%
2013, 25% 2011, 50% 2010, 60% 2009, 50% 2018.
We can see the dividends have been fluctuating in the years and the company is growing
immensely. So, I can have a positive return because of huge need of life-saving drugs to combat
the deadly virus.