Page 52 - Ebook Financial Accounting 3

Answer

Liability was at RM5,000,000 and dividend of RM250,000 will be paid on due dates.
a) Amortized cost

1 January Carrying Effective Interest Fixed Paid (5% 31 December

Amount (7.3%) of RM5 Million)
RM’000 RM’000 RM’000 RM’000

2015 5,000 365 (250) 5,115
2016 5,115 373 (250) 5,238

2017 5,238 382 (250) 5,370

2018 5,370 380* (250) 5,500

The liability was recognised at RM5,000,000. The effective rate of 7.3% will be provision for
dividend and 5% will be fixed rate. At the same time, the difference between the amount

provision of dividend and fixed dividend will be added to the carrying amount of preference

shares.

b) Fair value through profit or loss

1 January Carrying Fixed Paid (5% of Fair Value 31 December
Amount RM5 Million) Change

RM’000 RM’000 RM’000 RM’000
2015 5,000 250 250 5,250

2016 5,250 250 100 5,350

2017 5,350 250 50 5,400
2018 5,400 250 100 5,500

The liability was recognised at RM5,000,000. At the end of 2015, the dividend cost of
RM250,000 will recognised as expenses. As the market value of the redeemable preference

shares is RM1.05, the carrying amount will increase to RM5,250,000 (RM1.05 x
RM5,000,000). The fair value change will also charge as expenses. Therefore, the total

expenses charge will be RM500,000 (RM250,000 + RM100,000 + RM50,000 + RM100,000).

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