FINANCIAL INSTRUMENTS

I have checked IFRS 13 -fairvalue measurement .it says direct costs of acquisition are not capitalised but expensed if the asset is measured at FV.Any changes in FV is recognised in P/L. i am not so sure if this applies to financial assets as well. Thanks in advance Mike.

Hi, The transaction costs are included on initial measurement of the financial asset if it is at amortised cost. If it is at fair value then the transaction costs are immediately expensed through profit or loss. Thanks

Thank you.even if an equity instrument is measured at FV ,the transaction costs are recognised .for example if entity purchases shares at a market value of $6.50 but only pays $5.The investment will be recognised at $6.50 per share plus any transaction costs under non current assets in SOFP.however the difference between the purchase price and market value is recognised in profit or loss immediately as a gain(OCI??). May you please confirm whether my understanding is correct. Thanks

Hi, If you've paid $5 then you recognise the asset at $5. That is surely reflective of the fair value. Why are you paying less than the market value anyway? Thanks

Hie Mike, I think it is very common with equity instruments that the actual purchase price of the instrument may be offered at lower than the market value .Its a conplex area that I find so confusing.

Is it?

You were completely right Mike. i have read the standard again.The actual issue i intended to adress was an equity instrument held under a business model to realise changes in fair value of the instrument. the example above should therefore be , the instrument was purchased at $5 per share .The total number of shares say 10,000 with a transaction cost of say $3000. At the end of the year the market value is $6.50. i intended to confirm whether i will be correct if I write off the transaction cost of $3000 to P/L,recognise a gain of ($6.5-$5.0 *10,000)=$5,000. EXTRACT P/L $ investment income 5,000 transaction costs (3,000) EXTRACT SOFP investment in equity instrument 65,000 Also if the asssumption is that the entity has made an irrevocable election to recognise the equity instrument through other comprehnsive income, transaction costs will be capitalised . is this treatment correct regarding equity instruments . I understand that the equity does not have to be measured at armotised cost for transaction costs to be capitalised .Yet if this was a debt instrument , the transaction costs would be expensed to profit or loss.

Hi, If the instrument is FVTPL then the transaction costs are expensed immediately. If it is anything else then they will be capitalised. In your example you haven't said if it FVTPL or FVTOCI, which is crucial to the initial treatment. The initial treatment is as follows If FVTPL - Expense in SPL of $3,000 and asset of $50,000: If FVTOCI - Asset of $53,000 Hope this clears up any confusion. Thanks

Yes it surely does clear the confusion and thanks for your support.

Hi, Can put your question in a new thread please, and not one that is nearly two years old. Plus if you can shorten it too it might help me. It looks a bit detailed and would take me and age to read, understand and then answer. Thanks