Financial assets – ACCA (SBR) lectures
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Dear Sir, I have a question
Why in example 1 – Financial assets part a: the transaction cost $0.25 should be capital in initial measurement, right? why do you note that as expenses?
This was a great lecture. I now have a better understanding of financial assets and how they are recorded. The debentures was a little tricky because of the terminologies used; especially where the coupon rate is actually calculated on the par value.
The journal entries also made things quite clear for me personally. Thanks
Example 1 part 3
My thinking that the effective interest rate is supposed to be used in discounting cash flows as opposed to actually using it to compute finance income as done by the lecturer.
I mean that the EIR should be used in discounting the 40,000 future payments and the future payment of 100 plus premium.
Could you please clarify on this or explain a little bit more.
Hi there, for the effective interest rate you need to calculate IRR, Internal rate of return. You can use the excel Function to find that, which is the rate at which the present value of all the cash flows from the initial investment and future payments plus premium will become zero. If you use the effective rate of interest to discount the future payments you will arrive at the initial fair value of the investment, so why would we bother? we can just use the initial investment amount less discount and transaction costs.
Please for example 2, my kaplan textbook FR, says that i should take the OCI to P&L. i.e. the remaining 50,000 in OCI after Dr Cash 650,000, Cr Financial asset 620,000, Cr OCI 30,000. And this appears consistent with the understanding on realised gains and losses, since the asset is already sold
apologies, please ignore, i was wrong
Many thanks for this insightful lecture. What about the premium of 5%. How is it treated. Would we ignore until we intend to redeem?. What if the debenture was purchased at a premium of say 5%; how would it have been treated?
hi question concerning the debentures. after doing the calculation im getting $1049510 as c/d in the 4th year. shouldnt be nil at the end of the year?? can you clarify please thank you
I think what you missed out in the calculation is that you didn’t factor into the calculation the redemption value of $1,050,000. If this is factored in you’ll probably be getting nil balance, subject to rounding errors.
No. Why would it be zero when you own the asset? It should be close to 1050,000(Which you already had).
A light update to my post earlier, yes the balance at end of year four after the debt is repaid should be zero. Norman have to repay the capital + 5% premium.
Hi,
In example 2, the last financial asset, the interest income on the bond (5.71%), is this paid by the bond issuer or paid by Norman who bought the bond?
That’s interest income receivable from the bond issuer. Then an asset in the book of Norman and liability in the books of the bond issuer.
This is the effective rate of interest which is rate of return.
great lecture
isn’t the outflow in the cash flow statement only if it was paid in cash or r u trying to make the point that this is under investing activities?
Do we show the coupon rate intrest and the effective rate intrest in the SCF?
Sir, is there any lecture that will be going to upload sooner or later on the impairment of financial assets ?
Very clear!!!
Thanks ?
For example 2 part A – How did you determine that the default classification was FVTPL ?