GUGULETHU LIMITED
Calculations
| Date of cash flow | CU | |
| 01/01/2015 | Fair value + CU500 transaction costs | |
| 31/12/2015 | CU10,000 x 10% | 1,0001 |
| (CU10,000 x 110%)/2 | 5,5002 | |
| 31/12/2016 | CU5,000 x 10% | 5001 |
| (CU10,000 x 110%)/2 | 5,5002 |
1 – interest amounts received in cash calculated on nominal value
2 – redemptions at a premium of 10%.
Calculation of the fair value of the investment on initial recognition
| Cf0 | 0 |
| Cf1 | 1,000 + 5,500 = 6,500 |
| Cf2 | 500 + 5,500 = 6,000 |
| I/YR | 16,5 |
| NPV | = ? = 10,000,18 |
Calculation of “i” (the effective interest rate) as the present value changed due to the CU500 transaction costs that must now be capitalised to the amount initially recognised for the investment
| Cf0 | – (10,000,18 + CU500) = – 10,500,18 |
| Cf1 | 6,500 |
| Cf2 | 6,000 |
| IRR | = ? = 12,6354% |
1. General journal of Gugulethu Limited
| DR
CU |
CR
CU |
||
| 2015 | |||
| 01/01 | Investment in debentures (SFP) | 10,000,18 | |
| Bank (SFP) | 10,000,18 | ||
| Investment in debentures (SFP) | 500,00 | ||
| Bank (SFP) | 500,00 | ||
| 31/12 | Investment in debentures (SFP) | 1,326,74 | |
| Finance income (P or L) | 1,326,74 | ||
| CU10,500,18 x 12,6354% | |||
| 31/12 | Bank (SFP) | 1,000,00 | |
| Investment in debentures (SFP) | 1,000,00 | ||
| Balance on Investment in debentures account: CU10,500,18 + CU1,326,74 – CU1,000,00 = CU10,826,92 | |||
| 31/12 | Bank (SFP) | 5,500,00 | |
| Investment in debentures (SFP) | 5,500,00 | ||
| Balance on Investment in debentures account: CU10,826,92 – CU5,500,00 = CU5,326,92 | |||
| 2016 | |||
| 31/12 | Investment in debentures (SFP) | 673,08 | |
| Finance income (P or L) | 673,08 | ||
| CU5,326,92 x 12,6354% | |||
| 31/12 | Bank (SFP) | 500,00 | |
| Investment in debentures (SFP) | 500,00 | ||
| Balance on Investment in debentures account:CU5,326,92 + CU673,08 – CU500,00 = CU5,500,00 | |||
| 31/12 | Bank (SFP) | 5,500,00 | |
| Investment in debentures (SFP)Balance on Investment in debentures account:CU5,500,00- CU5,500,00 = R0 | 5,500,00 | ||
2. General ledger of Gugulethu Limited
