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Hi! The following is the scenario:
X spent $10 million on gold, an asset that is actively traded. X purchased it for investment purposes and does not buy and sell gold in the ordinary course of business. One of the directors has suggested that gold meets the definition of financial asset and that the investment should therefore be measured at fair value through profit or loss. The directors require advice as to whether gold is a financial asset and whether the proposed accounting treatment is correct.Kindly guide me through this because i have mixed views in this part.
Thanks 🙂
These are my initial thoughts …… financial assets are different than physical assets, like gold (or land). With gold, you can touch and feel the actual physical asset, but with financial assets, you can only touch and feel something (usually a piece of paper) that represents the asset of value.
I’m not therefore sure that the director is correct in his assertion that gold satisfies the definition of a financial asset
Chandni, this sounds like a past exam question. If you’ve got the question, then surely you must have the answer too
Read the answer and, if there’s anything there that you don’t follow, then post again
No, i tried tracing it in past exam questions but did not get anything out of it!
This was part of my revision phase and i don’t get the answers immediately.Its okay! I’ll give a try and hope for the best.
I have been set the exact same question by Kaplan as their Dec 15 mock,
I understand that it does not meet the definition of a financial asset, what i am struggling with is should it just be classed as an investment on the SOFP and should be revalued at every year end to its fair value?
Any help would be great…
Thanks
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