Transaction cost (financial instrument)

HH4y ago

Hello I don't understand why does the transaction cost go to P/L account when there's no intention to hold the instrument, while it is included as part of cost of investment when theres intention to hold? What is the logic behind it? Second:. Why is a gain or loss on the investment recognised immediately to P/L when theres no intention to sell, while we haven't even yet sold it at the reporting date?

P2-D2Tutor4y ago#1

Hi, If we are looking to trade the instrument in the short term then the costs incurred are expensed immediately as opposed to being capitalised as it matches up with the intention of holding the instrument, i.e. to be sold shortly. If we intend to hold it for the longer term then to expense the costs would not match our intent, i.e. to hold for the foreseeable future and then realise the gains. The recognition of gains/losses then matches our intent too. If we are looking to sell shortly then we will be realising the gain/losses shortly and hence through profit or loss. If the intend is to hold for the longer period of time then the gains/losses will not be realised shortly and so stored up in reserves. Thanks