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Hi opentuition,
First of all i should say thanks for your brilliant lectures.
In fact i got the whole syllabus of financial instruments well and i did well on all each question in my revision kit except one question that made me confused,
The question is:On 1 January 20X8 a company purchased 40,000 $1 listed equity shares at a price of $3 per share. An
irrevocable election was made to recognise the shares at fair value through other comprehensive income.
Transaction costs were $3,000. At the year end of 31 December 20X8 the shares were trading at $6 per share.
What amount in respect of these shares will be shown under ‘investments in equity instruments’ in the
statement of financial position as at 31 December 20X8?Actually i added up the figure for 243,000
However the answer says its 240,000
Because transaction costs should be omitted for subsequent measurement.
“(Transaction costs are added to the initial cost but omitted from subsequent measurement)”Although as i remember in notes and lectures it was held that transaction costs in FVTOCI situations should be capitalized and expensed in FVTPL
Now this question is incompatible with what it actually mentioned and also incompatible with the same question that was in BPP book(it capitalized the transaction costs in subsequent measurement too).I think i’m a little bit wrong about this question,would you please clarify this confusion for me?!
Again your lectures and other resources are wonderful
ThanksHi,
Thanks for the lovely comments. This is the last question I’m answering tonight so I can sleep well knowing all the hard work is appreciated. Thank you!
What it is trying to say is that when we look at the reporting date fair value we just use the fair value of $6 per share, and so in total it would be $240,000 at the reporting date. The transaction costs were dealt with at acquisition, so just ignore them at the reporting date.
When looking at the movement then the initial value is inclusive of the transaction cost, so $123,000 ((40,000 x $3) + $3,000), which gives a movement of $117,000 through profit or loss.
Hope that clears it up.
Thanks
Chris
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