The business model of Hamza Ltd is to collect the contractual cash flows over the life of the bonds, which means the bonds should be measured at amortised cost. The following explains the financial reporting treatment:

1. As of 31 December 2022:
   • Since the bonds are considered low risk, they fall under Stage 1 of the IFRS 9 impairment model, requiring recognition of a 12-month expected credit loss.
   • Hamza Ltd should recognise a GH¢10,000 expected credit loss in the financial statements. This amount would be netted off the carrying value of the bond, leaving a carrying value of GH¢9.99 million (GH¢10 million – GH¢10,000).
   • The effective interest rate of 8% would result in GH¢800,000 interest income recognised in profit or loss. The coupon of 5% (GH¢500,000) would be deducted from this, leaving a carrying amount of GH¢10.3 million.

   Amortised cost table as of 31 December 2023:

   Year	Opening balance (GH¢ million)	Interest (8%) (GH¢ million)	Coupon (5%) (GH¢ million)	Carrying amount (GH¢ million)
   2023	10.0	0.8	0.5	10.3

2. As of 31 December 2023:
   • There was a significant increase in the credit risk, shifting the bonds to Stage 2 under IFRS 9, requiring recognition of lifetime expected credit losses.
   • The expected credit loss (ECL) was calculated using the discounted cash shortfall method with the following losses:
     • For 2024: 3% of GH¢462,963 = GH¢13,889
     • For 2025: 5% of GH¢6,858,710 = GH¢342,936
   • The total expected loss is GH¢356,825.
   • The bond’s carrying amount at 31 December 2023 would be GH¢9.943 million (GH¢10.3 million – GH¢356,825) after deducting the expected credit loss.

Marks Allocation:

• Identification of IFRS 9 provisions: 1 mark
• Classification of bonds and ECL: 2 marks
• Amortised cost table and interest calculation: 3 marks
• Present value of default loss calculation: 2 marks
• Determining the carrying amount: 1 mark
  (Total: 10 marks)