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Hi Mr. MikeLittle
Can you explain to me why transaction cost is not added to the amount which will be shown in a balance sheet? We know transaction cost is added and also shown in OCI.that if shares are recognise through other comprehensive income and investments which are not held for trading . Let me be clear 🙂 Thanks for attention
On 1 January 20X8 a company purchased 40,000 $1 listed equity shares at a price of $3 per share. An
irrevocable election was made to recognise the shares at fair value through other comprehensive income.
Transaction costs were $3,000. At the year end of 31 December 20X8 the shares were trading at $6 per share.
What amount in respect of these shares will be shown under ‘investments in equity instruments’ in the
statement of financial position as at 31 December 20X8?For initial recognition, transaction costs are added or subtracted as appropriate
For subsequent measurement, fair value is used with movements since previous measure going through other comprehensive income
So the accounting effect of transaction costs is that they are included for the purposes of initial measurement and ‘netted off’ as part of that first year’s movement when the first year end comes along
(40,000 * $3) + $3,000 = $123,000
40,000 * $6 = $240,000
Gain through oci $117,000
Fair value in SoFP $240,000
Better?
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