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Equity insturment

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Equity insturment

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by MikeLittle.
Viewing 2 posts - 1 through 2 (of 2 total)
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  • May 6, 2017 at 9:14 am #385056
    kengara
    Member
    • Topics: 197
    • Replies: 107
    • ☆☆☆

    Hi Mr Mike, The question has been taken from Bpp mock exam 3 page number 223

    Speculate co is preparing its financial statements for the year ended 30 september 20×3

    Shareholding A-a long-term investment in 10000 of the equity shares of another company.These shares were acquired on 1 october 20×2 at a cost of $3.50.Transaction costs of 1% of the purchase price were incurred.On 30 september 20×3 the fv of these shares is $4.50

    Speculate co makes an irrevocable election for the fv movements on financial assets to be reported in OCI

    In respect of the financial assets of Speculate CO, what amount will be included in OCI for the year ended 30 September 20×3?

    Answer in the Bpp test bank
    10000*3.50=35000*1.01=35350
    10000*4.50=45000
    45000-35350=9650

    why we recognize transaction cost here, instead we should capitalise it.
    there is similar example in Bpp which they recognised it like that

    under oci
    Gain on investment
    10000*4.50-10000*3.50=10000

    under sftp
    10000*4,50=45000
    45000*1%=450
    45000+450

    Example in Bpp, as i mentioned above.

    We know that equity instrument is recognised in OCI when irrevocable decision made not held for trading.In this case, FV changes go to OCI, transactions costs capitalised and only dividend goes to P/L!

    In february 20×8, a company purchased 20000 1$ lsited equity shares at a price of 4 $per share.Transaction cost were 2000. At the year end of 31 december 20×8, those shares were trading at 5.50.A dividend of 0.20c per share was received on Sep 20×8

    31 december 20×8?

    Under oci
    gain on investment
    20000*4-20000*5.50

    Under p/l
    20000*0.20=4000
    Under sftp
    20000*5.50+2000(transaction cost)=112000

    in these two examples, it is almost the same exercise but they recognised differently even they both say irrevocable decision.WHY?

    Does this answer you? It’s paragraph 5.1.1 from IFRS 9

    “At initial recognition, an entity shall measure a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability”

    Bpp study text, page number 198 valid untill June 2017

    Equity Instruments.

    After initial recognition equity instruments are measured at either fair value through profit or loss or fair value through other comprehensive income.

    If equity instruments are held at FVTPL, no transaction costs are included in the carrying amount.

    Equity instruments can be held at FVTOCI; if

    a)They are not held for trading-the intention is to hold them for the long term to collect dividend income

    b)an irrevocable election is made at initial recognition to measure the investment at FvTOCI -if the investment is held at FVTOCI, all changes in fair value go through other comprehensive income.only dividend income will appear in p/l

    In february 20X8, a company purchased 20000 1$ lsited equity shares at a price of 4 $per share.Transaction cost were 2000. At the year end of 31 december 20×8, those shares were trading at 5.50.A dividend of 0.20c per share was received on Sep 20X8

    show the financial statement extracts at 31 december 20X8 relating to this investment on the basis that?

    Under oci
    gain on investment
    20000*4-20000*5.50

    Under p/l
    20000*0.20=4000
    Under Statement of financial position
    20000*5.50+2000(transaction cost)=112000

    this is in example in Bpp but above question they just did sth different way?

    are not both equity instrument examples?

    Speculate co is preparing its financial statements for the year ended 30 september 20×3

    Shareholding A-a long-term investment in 10000 of the equity shares of another company.These shares were acquired on 1 october 20X2 at a cost of $3.50.Transaction costs of 1% of the purchase price were incurred.On 30 september 20X3 the fv of these shares is $4.50

    Speculate co makes an irrevocable election for the fv movements on financial assets to be reported in OCI

    In respect of the financial assets of Speculate CO, what amount will be included in OCI for the year ended 30 September 20X3?

    Answer in the Bpp test bank
    10000*3.50=35000*1.01(why they multiplied it purchase price with overall share price on the starting year of 1 october 20X2-35000?)=35350
    10000*4.50=45000(it should be multiplied with 45000 due to capitalisation because it should be added over at the end of year’s overall share price amoun?)
    45000-35350=9650

    In the above example, if you see it, you will gonna understand what is my question?

    May 6, 2017 at 5:36 pm #385118
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23315
    • ☆☆☆☆☆

    “10000*3.50=35000*1.01(why they multiplied it purchase price with overall share price on the starting year of 1 october 20X2-35000?)=35350”

    Here’s the answer to that … lifted from the question!

    These shares were acquired on 1 october 20×2 at a cost of $3.50.Transaction costs of 1% of the purchase price were incurred.

    “10000*4.50=45000(it should be multiplied with 45000 due to capitalisation because it should be added over at the end of year’s overall share price amoun?)”

    No! The question specifically tells you that transaction costs are 1% of THE PURCHASE PRICE

    OK?

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