Muhammad Ali Malik (18i-

TEST YOUR UNDERSTANDING# 5 0221)

CASE#1 Tokyo plans to hold bond until redemption date. (at Amortization Cost)

Date Particulars Particulars Dr ($) Cr ($)

01/1/01 Bond Investment   97000  
    Bank A/C   97000
         
       
31/12/01 Cash A/c   5000  
  Investment in Bonds   2760  
    Finance Income   7760
     
       
31/12/02 Cash A/c   5000  
  Investment in Bonds   2981  
    Finance Income   7981
       
31/12/03 Cash A/c   5000  
  Investment in Bonds   3219  
    Finance Income   8219
         
       
31/12/03 Bank A/c   97000  
  Share Premium   8960  
    Investment in Bonds   105960
Case#2 Tokyo may sell if possibility of investment with higher return arises. (through OCI)

Date Particulars Particulars Dr ($) Cr ($)

01-01-01 Bond Investment   97000  
    Bank A/C   97000
         
31/12/01 Cash A/c   5000  
  Investment In bonds   2760  
    Finance Income   7760
Other Comp.
31/12/01 Income   10240  
    Revaluation Gain   10240
         
01-01-02 Bond Investment   110000  
    Balance Sheet   110000
         
31/12/02 Cash A/c   5000  
  Investment in Bonds   2981  
    Finance Income   7981
31/12/02 Loss on Investment   8981  
    Other Comprehensive Income   8981
         
01-01-03 Bond Investment   104000  
    Balance Sheet   104000
         
31/12/03 Interest receivable   8219  
    Finance Income   8219
         
31/12/03 Loss on Investment   1259  
    Other Comprehensive Income   1259
         
31-12-03 Bank A/c   97000  
  Share Premium   8960  
    Investment in Bonds   105960
Case# 3 Tokyo planned to trade bond in the shot-term, selling it for fair value on January 1, 2002
(Through Profit
Date Particulars Particulars Dr ($) Cr ($)
01-01-01 Bond Investment   95000  
  Transaction Cost   2000  
    Bank A/C   97000
         
31/12/01 Cash A/c   5000  
    Finance Income   5000
         
31/12/01 Profit & Loss   15000  
    Gain on investment   15000
         
01-01-02 Cash A/C   110000  
    Bond Investment   110000