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Hello, Dear Tutor
i would like to ask you one thing. In equity instruments, if it is the default category, transaction costs are expensed to profit or loss, so, in turn, is the amount of investment also reduced? i mean, if the value of investment 100k and transaction costs 10k, 10 k would go to profit or loss, and at the same time, does it reduce the initial value of investment?
second: what about FVOCI? clearly, transaction costs are included in the initial value of investment. what about after one year when there has been a rise in the value of investment?
the same scenario: investment value-100k, transaction costs-10k, so total=110. after one year, investment value rises by 40k, so would the value of invesment be 150k, then?thank you for sparing your valuable time.
Hi,
No, when the transaction costs are expensed under the default treatment there is no impact on the value of the investment. The costs are treated by DR Costs CR Bank.
Yes, for the FVTOCI the transaction costs are capitalised where we DR Investment CR Bank. For your example you are correct about it being initially recognised at 110 and it would then be this value that is compared to the closing fair value to get the gain on the value of the investment that is then take to OCI.
Thanks
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