GERRIT LIMITED purchased an 18% CU500,000 debenture at 105 on 1 July 2013. The debenture was issued by Liyabona Limited, a company that trades on the JSE Limited. The debenture will be redeemed once-off by Liyabona Limited on 1 July 2015 at 95. Interest is payable six-monthly on 1 January and 1 July. The market related interest rate on similar debentures with similar terms is 12,81497%.
Gerrit Limited’s reporting date is 30 June. The objective of Gerrit Limited’s business model is to hold the debenture in order to collect contractual cash flows. The contractual terms of the debenture give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The asset was at no stage credit impaired. Ignore expected credit losses. Liyabona Limited did not designate the debenture as measured at fair value through profit or loss.
REQUIRED
- Prepare the general journal entries (cash transactions included) of Gerrit Limited for the period 1 July 2013 to 1 July 2015 (inclusive) to account for all matters related to the above transaction. Journal narrations are not required.
- Prepare the Investment in debentures general ledger account for the period 1 July 2013 to 1 July 2015 (inclusive), properly closed off.
| NOTES: | – Ignore transaction costs. |
| – Round calculated Currency Unit (CU) amounts to two decimal places. | |
| – Round interest rates calculated to five decimal places. |
🇿🇦 Gerrit is a variation of Gerhard, a name associated with many Old Master Painters.
🇿🇦 Liyabona a girl’s name derived from “Liyabona igama le Nkosi”, meaning “the eye of God”.
