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May 25, 2014 at 4:14 pm #170742Gabriel
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This question, I think was quite challenging compared to other published accounts question (e.g. Dec 2012 Quincy was very easy). So my first concern is why is there no consistency in F7 questions on consolidation and published accounts. Some sittings the questions are so easy and sometimes they are so hard? Isn’t this unfair? This just means that, for example, if I sit in June 2014 and the exam was “harder” than I would unfairly fail while someone, who sat, in Dec 2012, whose exam was damn easy, could have passed even tough they didn’t know the stuff.
Anyway, moving on to my real queries:
1. If you look at note (iv) in this question the (one of available for sale investments), then I get why the profit on disposal in the answer is 4000 because we have realized the previously recorded revaluation of 1800 but what I don’t get is why is he then deducting this same revaluation realization from other comprehensive income from the 2500 gain on the fair value of remaining investments. The two transactions are totally different so why minus the 1800 from the 2500? 2500 is what remains after we realized the revaluation. It states like that in the note.
2. Then when do we show “increase in fair value on investments” in comprehensive income and when do we show them as part of the I/S. I get very confused on this. Some answers have them shown in comprehensive income (like this one) and other like June 2010 Dune and Keystone of Dec 2011 have them shown in the body of I/S. How do i know where to show them correctly?
Gabriel.May 25, 2014 at 7:00 pm #170791MikeLittleKeymaster
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I’ve already replied to this, but the reply seems to be lost!
So here we go again 🙁
1) $4,000 is the overall gain ($11,000 – $7,000) But $1,800 of this has, in previous years, been credited to other comprehensive income. On the sale this year, that $1,800 is being released from OCI and transferred into Profit or Loss Account. The double entry Dr OCI (Other component of equity) and Cr Statement of Profit or Loss (gain on disposal of equity instrument)
2) Sandown clearly indicates that the gains in previous years have been credited not to Profit or Loss but instead to OCI
Dune and Keystone make it equally clear that previous years gains have gone through Profit or Loss and not, therefore, through OCI
That’s the difference. Most financial instruments now (following IFRS9) will go through Profit or Loss
Hope that helps
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