(c) Issue of bond The club proposes to issue a 7% bond with a face value of $50 million on 1 January 2007 at a discount of 5% that will be secured on income from future ticket sales and corporate hospitality receipts, which are approximately $20 million per annum. Under the agreement the club cannot use the first $6 million received from corporate hospitality sales and reserved tickets (season tickets) as this will be used to repay the bond. The money from the bond will be used to pay for ground improvements and to pay the wages of players. The bond will be repayable, both capital and interest, over 15 years with the first payment of $6 million due on 31 December 2007. It has an effective interest rate of 7·7%. There will be no active market for the bond and the company does not wish to use valuation models to value the bond. (6 marks) Required: Discuss how the above proposals would be dealt with in the financial statements of Seejoy for the year ending 31 December 2007, setting out their accounting treatment and appropriateness in helping the football club’s cash flow problems. (Candidates do not need knowledge of the football finance sector to answer this question.)