GUGULETHU LIMITED is listed on the JSE Limited and its reporting date is 31 December. On 1 January 2015, Gugulethu Limited purchased a 10% CU10,000 debenture in Jesse Limited, a listed company, at fair value. The debenture deed provided that the debenture would be repaid to the debenture holder in two equal annual amounts on 1 January at 110, with the first repayment on 31 December 2015. Interest is payable on 31 December of each year. The market related interest rate on similar debentures with similar terms is 16,5% per annum. Transaction costs of CU500 were incurred by Gugulethu Limited.
The objective of Gugulethu 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. Jesse 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 Gugulethu Limited for the period 1 January 2015 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 Gugulethu Limited for the period 1 January 2015 to 31 December 2016 (inclusive), properly closed off.
| NOTES: | – Round calculated Currency Unit (CU) amounts to two decimal places. |
| – Round interest rates calculated to four decimal places. |
🇿🇦 Gugulethu a unisex name meaning “one you are proud of”.
🇿🇦 Jesse is derived from Hebrew Yishai which in turn is derived from yishal meaning ‘gift’, ‘wealth’.
