ACCA SBR · Guided practice (Show me how)
Chapter 14: Financial Instruments (IAS 32, IFRS 7 and IFRS 9)
Financial assets: fair value through profit or loss, other comprehensive income and amortised cost
Example 1 - Financial assets. Norman has the following financial assets during the financial year ended 31 December 2015.
(1) Norman bought 100,000 shares in a listed entity on 1 November 2015. Each share cost $5 to purchase and a fee of $0.25 per share was paid as commission to a broker. The fair value of each share at 31 December 2015 was $3.50. Norman has not made any election for these shares.
(2) Norman bought 200,000 shares in a listed entity on 1 March 2015 for $500,000, incurring transaction costs of $40,000. Norman acquired the shares as part of a long term strategy to realise the gains in the future and made the irrevocable election to hold them at fair value through other comprehensive income. The fair value of the shares was $620,000 at 31 December 2015. The shares were subsequently sold for $650,000 on 31 January 2016.
(3) Norman bought 10,000 debentures at a 2% discount on the par value of $100. The debentures are redeemable in four years' time at a premium of 5%. The coupon rate attached to the debentures is 4%, received at the end of each year. The effective rate of interest on the debenture is 5.71%. Norman intends to hold the debentures until they are redeemed and collect the contractual cash flows.
(1) Shares at fair value through profit or loss
Calculate the initial carrying amount of Norman's first investment in shares, the transaction costs recognised in profit or loss and the loss recognised at 31 December 2015.
(2) Shares at fair value through other comprehensive income
Calculate the initial carrying amount of Norman's second investment in shares, the gain recognised at 31 December 2015 and the gain on its disposal on 31 January 2016, and state where the disposal gain is recognised.
(3) Debentures at amortised cost
Calculate the initial carrying amount of Norman's debentures, the interest income for the first year and the carrying amount at the end of the first year.
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