Financial Accounting Report: Analysis of Debt Instrument Investment

This report, prepared for Angela Kirk, the CEO of Wakefield Ltd, analyzes the accounting requirements for investing in debt instruments, focusing on the application of AASB 9. The report explains how debt instruments are classified as financial assets and the importance of recording them at fair value initially. It details the considerations for subsequent measurement, including amortized cost, fair value through profit or loss, and fair value through other comprehensive income. The analysis covers the implications of contractual terms, prepayment features, and the importance of proper disclosure in financial statements. The report emphasizes the significance of fair value in the market and provides a comprehensive overview of the factors that companies must consider when valuing debt instruments, ensuring compliance with accounting standards. The report concludes by summarizing the critical points for recording the value of debt instruments, including contractual cash flow and sale purposes, ensuring the value of the asset is recorded correctly in the company's financial statements. It also refers to the relevant paragraphs in AASB 9.

Running head: FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Name of the Student
Name of the University
Author Note

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Memorandum
To: Angela Kirk
From: Ross Kirk
Date: 25th August 2019
Subject: Accounting Requirement for Investment
The AASB 9 which deal with the analysis of Financial Instrument in the company, it show all
the activities which the company have to ascertain about the difference of financial asset and
financial liability (Aasb.gov.au. 2019). As per AASB 9 the debt instrument is consider as
financial asset in the company and the company should able to consider the same in recording
the debt instrument in the company. Company should record the same in the initial
requirement and should able to give proper amount of disclosure in their annual report so the
company financial user is able to know how they have done the valuation in the company
business.
In paragraph 4.2.2 the company should able to record the same in the fair market price value
of the asset in the initial recording of the same as it should also be get affected by the
amortise cost in the company financial statement (Ariff & Safari 2015). It should able to get
proper amount of information about the fair value which will help the company to record the
asset easily in the company financial statement. The company should also able to check the
amount of value of asset and should record the same in their financial statement.
Company should able to record initial at fair value but it should also take into consideration
about the profit and loss effect in the asset (Buchanan 2016). As the asset is been utilized for
2 years than the company is able to record the same. These may affect the overall valuation of
company so it may happen due to the interest affect the company have to record it below or

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above the initial value so this help them to gain proper knowledge about the overall fair value
of debt instrument.
AASB state that the company should able to record the asset initial at cost but it should
change the valuation after the initial requirement so it should able to do as per the paragraph
5.2.1 which show how the company is able to record the asset after initial process (Chanavat
2019). As while the recording the asset it should able to consider amortised cost on asset, fair
value through income and loss account and fair value through other income of the company.
It should also take into consideration the impairment of asset in the calculation of the book
value of debt instrument. So this all the factor should be taken into consideration by the
company while calculating the book value in the company financial statement.
Debt Instrument is able to recorded at initial market value and not the value which the
company have to pay to spend upon the acquiring of the asset (De Fiore & Uhlig 2015).
There will be not affect upon the recording of the asset in company financial statement as it
should be recorded as per the fair value in the market but the company should able to give
proper amount of disclosure in their financial statement (Stiglitz & Heymann 2014).
Company have to check certain condition while recording the debt instrument in regards of
contractual term or sale as it should able to record it as amortised cost or fair value in regards
of other comprehensive income so to make sure the company is recording the asset it should
be consider the points to follow the conditions shown below:
 The company is able to acquire or create the financial asset in a premium or discount
to the contractual par amount.
 The repayment which is done by the company is substantially show the contractual
par amount of asset and also accrued on contractual interest in the company business.

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this may be included as reasonable compensation in regards of the termination of the
contract (Fender & Lewrick 2015).
 The company recording the initial amount of asset at fair value that the prepayment
feature is not useful for the same (Mencinger, Aristovnik & Verbic 2014).
This are the points which should be consider by the company while recording the value of
debt instrument in regards of contractual cash flow and for sale purpose. This should also
be taken into consideration while the company is able to record the value of its asset in
company business.

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Reference
Aasb.gov.au. (2019). Retrieved 25 August 2019, from
https://www.aasb.gov.au/admin/file/content105/c9/AASB9_12-14.pdf
Ariff, M., & Safari, M. (2015). Valuation of Islamic debt instruments, the Sukuk: Lessons for
market development. Islamic banking and finance–Essays on corporate finance,
efficiency and product development, 1.
Buchanan, J. M. (2016). Public debt. The New Palgrave Dictionary of Economics, 1-7.
Chanavat, A. (2019). U.S. Patent Application No. 10/346,920.
De Fiore, F., & Uhlig, H. (2015). Corporate debt structure and the financial crisis. Journal of
Money, credit and Banking, 47(8), 1571-1598.
Fender, I., & Lewrick, U. (2015). Shifting tides–market liquidity and market-making in fixed
income instruments. BIS Quarterly Review, March.
Mencinger, J., Aristovnik, A., & Verbic, M. (2014). The impact of growing public debt on
economic growth in the European Union. Amfiteatru Economic Journal, 16(35), 403-
414.
Stiglitz, J., & Heymann, D. (Eds.). (2014). Life after debt: The origins and resolutions of debt
crisis. Springer.