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I have a question about asset held for sale and did not understand the answer provided by ACCA. Thanks for reading.
Question: Shareholding 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. NilFor initial measurement, unless it’s a financial asset or financial liability at fair value through profit or loss, transaction costs are included in that initial measurement
So, if it IS elected to be “at fair value through profit and loss” transaction costs are NOT included in that initial measurement
But in the situation that you have raised in your post, Speculate Co has made an irrevocable election for the fair value movements on financial assets to be reported in other comprehensive income and therefore transaction costs ARE taken into account for that initial measurement
Does that resolve your quandary?
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