JACOBUS LIMITED purchased a CU500,000 18% debenture from Thembeka Limited when they were issued at 105 on 1 January 2014. The debentures will be repaid by Thembeka Limited in two equal annual instalments on 31 December at 95, with the first instalment payable on 31 December 2015. Interest is payable annually on 31 December. The market related interest rate on similar debentures with similar terms is 14,5% per annum. Transactions costs of CU15,000 were incurred by Jacobus Limited.
Both companies’ reporting dates are 31 December and both companies are listed on the JSE Limited.
The objective of Jacobus 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. Thembeka Limited did not designate the debenture as measured at fair value through profit or loss.
REQUIRED
1. Prepare the general journal entries (cash transactions included) of Jacobus Limited for the period 1 January 2014 to 31 December 2016 (inclusive) to account for all matters related to the above transaction. Journal narrations are not required.
2. Prepare the Investment in debentures general ledger account of Jacobus Limited for the period 1 January 2014 to 31 December 2016 (inclusive). The general ledger account must be properly closed off.
| NOTES: | – Round calculated Currency Unit (CU) amounts to two decimal places. |
| – Do not round any interest rates calculated. |
🇿🇦 Jacobus, an Afrikaans name meaning ‘protector’.
🇿🇦 Thembeka means the one who is trustworthy.
