Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Other comprehensive income
- This topic has 1 reply, 2 voices, and was last updated 6 years ago by MikeLittle.
- AuthorPosts
- July 16, 2017 at 6:35 am #396232
BPP Mock 3 Revision Kit F7 has the following question:
Financial assetsShareholding A – a long-term investment in 10,000 of the equity shares of another company. These shares were acquired on 1 October 20X2 at a cost of $3·50 each. Transaction costs of 1% of the purchase price were incurred. On 30 September 20X3 the fair value of these shares is $4·50 each.
Shareholding B – a short-term speculative investment in 2,000 of the equity shares of another company.These shares were acquired on 1 December 20X2 at a cost of $2·50 each. Transaction costs of 1% of the purchase price were incurred. On 30 September 20X3 the fair value of these shares is $3·00 each.
Where possible, Speculate Co makes an irrevocable election for the fair value movements on financial assets to be reported in other comprehensive income.In respect of the financial assets of Speculate Co, what amount will be included in other comprehensive income for the year ended 30 September 20X3?
A $9,650
B $10,650
C $10,000
D $nilThe answer given is:
A
Shareholding A is not held for trading as an election made – FVTOCI.
Shareholding B is held for trading and so FVTPL (transaction costs are not included in carrying
amount).
Cost of shareholding A is 10,000 × $3.50 × 1.01 = $35,350.
FV at 30 September 20X3 10,000 × $4.50 = $45,000.
Gain = 45,000 – 35,350 = $9,650.I think the answer should be 10,000*(4.5-3.5)= 10,000 as it’s measured through FVTOCI, according to textbook BPP F7 page 198
Please help me to explain more about this!
Thank you!July 16, 2017 at 8:23 am #396244Here’s an extract from the IASPLUS website:
“Overview of IFRS 9
Initial measurement of financial instruments
All financial instruments are initially measured at fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs”
In the case of that first shareholding, the 10,000 shares that cost $3.50 each has a purchase cost of $35,000. But IFRS 9 states that, if it’s an asset that is NOT to be carried at fair value through profit or loss (ie, it’s to be carried at fvtoci) then that initial measurement shall include the transaction costs – in this case it’s 1% x $35,000 = $350
Clear?
- AuthorPosts
- The topic ‘Other comprehensive income’ is closed to new replies.