Final answer:
The correct IFRS statement is that bank overdrafts can be offset against other cash accounts under certain conditions. Assets on a bank's balance sheet include loans and investments, which means the actual cash is not physically in the bank. The value you're willing to pay for loans in the secondary market varies based on the borrower's payment history and changes in economy-wide interest rates.
Step-by-step explanation:
The correct answer to the question, 'Which of the following statements about reporting accounting for investments in debt securities under IFRS is true?' is (c) Bank overdrafts may be offset against other cash accounts when certain conditions are met. This statement is true under International Financial Reporting Standards (IFRS), as long as there is a legally enforceable right to offset the recognized amounts and the intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Regarding the balance sheet money not actually being in the bank, assets listed on a bank's balance sheet like loans and investments may represent funds that have already been lent out or invested, and thus they are not physically held as cash in the bank. Banks are financial intermediaries that use a fraction of deposits to extend loans, creating money in the economy through the process of banking.
If you're considering buying loans in the secondary market, factors that affect the price you would be willing to pay include:
- If the borrower has been late on loan payments, this indicates a higher risk of default, and you would typically pay less for such a loan.
- Rising interest rates would make existing loans at a lower rate less attractive, hence you would pay less.
- If the borrower is a firm that reported high profits, the loan seems more secure, and you may pay more.
- Falling interest rates make older, higher-rate loans more valuable, leading you to pay more for these loans.