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On 1 jan 20×3 wincarnis purchased 30000 $1 shares in listed co for $5/share. Transaction cost is $2000 and wincarnis elected to recognise the shares at FVTOCI. At ye 31 Dec 20×3 the shares were trading at $6.50.
Amount of shares recognised in SOFP at 31 Dec 20×3?
Why is the answer $6.50×30000 + $2000 = $197000? I thought this is the initial recognition at 1 jan 20×3?
Shouldn’t it be without the transaction cost ($195000) at 31 Dec x3?If the election is made to go through OCI, I believe that transaction costs are included in the value of the asset and are not expensed
Sir, Bpp text book there is another similar question but the answer provided is that the extracts of sofp at year end shows the amt of shares without transaction cost.
Why is this so?
(The first question asked is taken from bpp mock exam 2)And, for the first ques is the gain recognised in oci ($6.50×30000) – ($5×30000+2000) = $43000?
If so shouldn’t the sofp bal be 195000? (6.50×30000)
Sorry sir i just dont get why transaction cost is added even after being included for fair value changes.Sir, i understand your explanation, it’s just that the 2 different ans in both text and kit confused me. Hope you can help to clarify this with me. Thanks in advance!
So 8 hours 30 minutes is not fast enough for you, and you have to send me a reminder!!!!
I do work all day teaching, then return to the hotel (where I arrived just 10 minutes ago)
I am not connected 24/7 to the site in a way that would enable me to respond almost before you post your question.
Please, show some patience!
Now, may I refer you to Tom Clendon’s two articles in Student Accountant from around two years ago.
In that article Tom shows diagrammatically when transaction costs are to be included on initial measurement and when they are not Included
I’m so sorry sir, i’ll be more patient next time. Just to confirm once more, so for FVTOCI the transaction cost is added at the end of the year not at initial recognition?
No! Read Tom’s article – here I quote a relevant section:
“They are initially measured at fair value plus, in the case of a financial asset not at FVTPL, transaction costs”
Read his article and understand the initial recognition. But referring to my very first question about wincarnis why is it at year end 31 dec X3 the fair value of shares is 197000?(with transaction cost)
Am i wrong to say that initial recognition is at the time of purchase of shares(i.e 1 Jan X3) and subsequent measurement is at 31 Dec X3?
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