Reference no: EM132835460

On January 2, 2013 Saint Company invested in a 4-year 10% bond with a face value of P6,000,000 in which interest is to be paid every December 31. The bonds has an effective interest rate of 9% and was acquired for P6,194,383. On December 31, 2014, the management of Saint Company decided to dispose P4,000,000 face value debt instruments which will be used to settle an obligation and to finance some of its operating costs.

The company has a business model of collecting the contractual cash flows for all their debt security investments, however due to frequent sale and disposal
  of investments the management has decided that the business model is no longer appropriate. On December 31, 2014, the four million face value debt instrument was disposed of when the market rate of similar instrument was 11%.

PV factor of 11% after 2 years 0.8116 PV factor of annuity of 11% after 2 years 1.7125

Problem 1: What is the amortized cost of the debt instrument on December 31, 2014?

Problem 2: If the remaining debt securities were redesignated on January 1, 2015 when the market rate of interest has yet to change, what is the amount of gain or loss should the company recognize in its 2015 profit or loss as a result of the redesignation?