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I’ve been going through some exam questions and can’t decide the reason for when transaction costs are included or not.
I understand you include transaction costs for keeping shares and not selling, but sometimes its unclear in the question what the intention is.
Could someone explain to me in the following examples (provided you have the Kaplan study text) why the transaction costs has been included or not
Q91 (transaction cost included)
Q92 (transaction cost not included)
Q95 (transaction costs included and why is this reduces as opposed to being added on?)
If someone could advise on the 3 questions I listed above I would be very grateful.
If you want me to write out the question (for those who don’t have the exam kit) please let me know and I will do so. Thanks
If you want to ask the tutor directly, kindly start a thread in Ask the Tutor Forums. This forum is for students to help each other.
1. For Financial Assets, transactions costs are:
Expensed under Fair Value Through Profit or Loss (FVTPL)
Capitalised under Fair Value Through Other Comprehensive Income (FVTOCI) and Amortised Cost
2. For financial assets which are equity instruments (shares), the ‘default’ category is FVTPL unless the entity opts for alternative treatment (i.e. FVTOCI).
3. For Financial Liabilities, transaction costs are always deducted.
For Q91 and Q92, points 1 and 2 are relevant.
For Q95, point 3 is relevant.
All these rules are stated in the notes and explained in the free lectures.