Tanner-UNF Corporation acquired as a long-term investment $170 million of 6.0% bonds, dated July 1, on July 1, 2018. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 8% for bonds of similar risk and maturity. Tanner-UNF paid $140.0 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2018, was $150.0 million.

Required:
a. How would this investment be classified on Tanner-UNF's balance sheet?
b. Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2018.

IAS 32 defines a Financial Asset as any asset that is cash, equity instrument of another entity, a contractual right to receive cash or another asset. The bonds acquired by Tanner-UNF Corporation presents a contractual right to receive cash therefore it is a Financial Asset.

Classification

IFRS 9 deals with the classification of Financial Assets. Financial Assets can be classified at Amortized Cost, Fair Value through other Comprehensive Income and Fair Value through Profit and loss.

If the entity`s model is to collect the contractual cash flows and if these cash flows give rise to payments of principle and interest, the Financial will be classified as Amortized Cost. Since Tanner-UNF Corporation management has the positive intent and ability to hold the bonds until maturity, they will classify the Investment at Amortized Cost.

Initial measurement

All financial investments are initially measured at Fair Value. Thus, investment in $170 million of 6.0% bonds will be measured at $140.0 million.

Journal entry :

Debit : Investment in Bonds 140.0 million.

Credit : Cash 140.0 million.