You are the Financial Controller of Sumac Plc. an unrelated

You are the Financial Controller of Sumac Plc. an unrelated entity to Pine. You recently returned from a workshop on IFRS 9 ‘Financial Instruments’ a few months ago. On 1 October 2018, Sumac Plc, purchased a three (3) year debt instrument from Cherry Plc for K30 million. The bond had a fixed rate of interest of 6%. Issue costs incurred were K1.8 million. The bond has an effective interest rate of 8% and will be redeemed at a premium of K6.16 million. The purpose of the investment to Sumac Plc. is to hold the asset in order to collect the contractual cash flows, rather than to sell the investment prior to maturity. Further, the contractual terms of the asset give rise, on specified dates to cash flows that are solely receipts of either principal or interest.

Advise Sumac Plc. on the appropriate accounting treatment of the debt instrument, clearly indicating the effect of the transaction on Sumac Plc. financial statements for the year ended 30 September 2019.