AC2101: MicroFilm Ltd is a newly listed company that produces special coatings for a variety of surfaces such as metal: Accounting Recognition and Measurement Case Study, NTU, Singapore

MicroFilm Ltd is a newly listed company that produces special coatings for a variety of surfaces such as metal. plastic, and wood. MF has a 31 December financial year-end and prepares its financial statements in accordance with Singapore Financial Reporting Standards.

Over the period from 20×1 to 20×3. MF issued bonds and made a couple of ofkey investments. Specifically. the company made the following transactions:

(1) On 2 January 20×1. MF issued 3-year zero-coupon bonds with a face value of $5.000.000 for S4.024,803. and incurred transaction costs of $80,000. The face value of the bond will be repayable on 31 December 20×3. MF recognized these bonds on an amortized cost basis. For ME bonds, tax deduction was given based on the recognized interest expense amount and would be given upon bond maturity when MF incurs outlay to redeem the full face value of the bonds.

(2) On 2 January 20×2. Nickel works Ltd. is a listed company dealing with the trading of nickel and other metals. privately placed out some unlisted call options on its ordinary shares to selected investors. MF bought 500.000 NW options with a strike price of $2.50 and an expiration date on 31 December 20×3. MF purchased the options at their estimated fair value of $0.01 per option. Transaction cost for the purchase was negligible.

(3) On 31 December 20×2. the fair value of each call option was estimated by MF to be $0.20. On the expiration date of the NW options (i.e., 31 December 20×3). MF exercised all the options and received NW’s shares when NW’s share price was $3.00 per share and the fair value of each option was the same as the intrinsic value. Gains or losses from the investment in NW options were taxable or deductible when recognized.
On 2 January 20×3. MF acquired bonds of OakTree Ltd (“OT bonds”), an agricultural business dealing with hardwood such as oak and maple. The bonds had a par value of $1.000.000 and were purchased at $960.000.