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Dear Sir,
In the following question, I did not quite catch 2 things: 1) why did they use FVOCI? (I thought it should be FVPL, as a default category) 2) in the year-end, why did they not add $500 transaction costs again while revaluing it to $45,000 by multiplying 4.5 with $10,000?
ABC purchased 10,000 shares on 1 September 20X4, making the election to use the
alternative treatment under IFRS 9 Financial Instruments. The shares cost $3.50 each.
Transaction costs associated with the purchase were $500. At 31 December 20X4, the shares are trading at $4.50 each. What is the gain to be recognized on these shares for the year ended 31 December 20X4?Hi,
You are correct in your understanding of FVTPL being the default category but it says in the question that the business has opted to take the alternative treatment, i.e. FVTOCI.
In adopting this category the transaction costs are capitalised at initial recognition, we do not need to do anything with them at the reporting date. At the reporting date we work out the FV of the shares as has been done at $45,000, and then look at the movement from the amount recognised at initial recognition.
Thanks
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