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Hi question:
Company has purchased an investment of 15000 shares on 1/8/20×6 at a cost of $6.50. Transaction cost for the purchase amount to $1500. At y/e shares are now worth $7.75 each.how to know in this case if shares are held for long term or for trading? is it by the word investment? cause i feel somewhat it is dubious. I attempted another question, it stated that the company elect to use FVTOCI so i know its LT held until maturity
Also for debt instrument:
Method:
1) amortised cost ( is it only to hold until maturity?)
2) FVTOCI ( hold maturity and collect contractual c/f)
3) FVTPL (trading)Question: amortised cost and FVTOCI is the only difference being just one collect c/f and the other doesn’t?
May i know why Equity instruments:
1) FVTOCI you need to add the transaction cost and
2) FVTPL you need to exclude the transaction costIn what sort of case do you need to deduct the transaction. Because exclude and deduct is two different things right.
Hi initially i saw an acca lecture video saying all
financial liabilities have to – transaction cost and all
financial asset have to + transaction costThen i read in kaplan textbook saying that “transaction cost are included (does this mean we have to + ?) when measuring all financial assets and liabilities at amortised cost and when valuing financial assets valued at FVTOCI
Transaction cost for financial assets valued at FVTPL are expensed through the SOPL and not included (does this mean to deduct or ignore completely) in the initial value of the asset.
@aarina said:
Hi question:
Company has purchased an investment of 15000 shares on 1/8/20×6 at a cost of $6.50. Transaction cost for the purchase amount to $1500. At y/e shares are now worth $7.75 each.how to know in this case if shares are held for long term or for trading? is it by the word investment? cause i feel somewhat it is dubious. I attempted another question, it stated that the company elect to use FVTOCI so i know its LT held until maturity
Also for debt instrument:
Method:
1) amortised cost ( is it only to hold until maturity?)
2) FVTOCI ( hold maturity and collect contractual c/f)
3) FVTPL (trading)Question: amortised cost and FVTOCI is the only difference being just one collect c/f and the other doesn’t?
Hi,
The default treatment for equity investments is FVTPL unless the election is made at initial recognition. So if there isn’t anything to suggest that the shares are being held for the long term then we automatically go with FVTPL.
Yes, your understanding for debt instruments is correct, but at this level you are only likely to see amortised cost examined.
Thanks
@aarina said:
May i know why Equity instruments:
1) FVTOCI you need to add the transaction cost and
2) FVTPL you need to exclude the transaction costIn what sort of case do you need to deduct the transaction. Because exclude and deduct is two different things right.
Hi,
As FVTPL equity investment gains/losses are recognised through profit and loss, the initial transaction costs are therefore recognised there too immediately.
Transaction costs are not deducted for any financial assets. They are either expensed (FVTPL) or included/added to the value of the financial asset (FVTOCI).
Thanks
@aarina said:
Hi initially i saw an acca lecture video saying all
financial liabilities have to – transaction cost and all
financial asset have to + transaction costThen i read in kaplan textbook saying that “transaction cost are included (does this mean we have to + ?) when measuring all financial assets and liabilities at amortised cost and when valuing financial assets valued at FVTOCI
Transaction cost for financial assets valued at FVTPL are expensed through the SOPL and not included (does this mean to deduct or ignore completely) in the initial value of the asset.
Hi,
I’ve covered your query on financial assets above. For financial liabilities then the transaction costs are deducted from the value of the financial liability. If you think double entry then it might help you understand it a bit better. DR Financial asset CR Bank.
Thanks
Hi,
Thank you for for your very helpful explanations. May i know at what level should should there be more to examine and what sub area? Because i feel like i need to know everything under the sun that might be tested on acca so i have a firm knowledge upon exam. I had trauma for failing 3 times because the first incident, i didnt care much i just go to class, light read read. The second time i read the whole textbook and did some questions but come exam time some it was very unexpected and ive developed anxiety and stress issue, even went to rehab for that. Realize a decade later i should just do the whole exam kit instead of that. This time im gonna understand everything and anything.
Hi,
I’d recommend that you focus on the material in the class notes and use the study text to answer additional examples and questions. If you focus on the study text word for word in trying to understand everything and anything then you will find it a challenge and get bogged down on minor details that aren’t going to help you in the exam anyway.
Thanks
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