Fin Assets & Liabilities Revision

Question 1

Loan notes issued

Answer 1

Treat as Amortised. Finance costs P&L, Fin Liability NCL/CL

Question 2

Redeemable Preference shares

Answer 2

Treat similar to amortised. Finance costs P&L, Fin Liability NCL Preference Shares

Question 3

Convertible bonds issues

Answer 3

Equity portion stays as equity, Fin liability same as amortised. Finance Costs P&L each year

Question 4

Investing in bonds (assets) giving away money

Answer 4

Standard is FV through P&L (ignore costs to sell). Usually a share price increase question

Question 5

Investing in bonds if meets criteria

Answer 5

If meets business model and contractual cashflow test, can treat as amortised or FV through OCI
Amortised: ignore any revaluation, treat the same. Effective interest goes to investment income

Question 6

FV Through OCI on Investing in bonds

Answer 6

Use Amortised table, effective interest is on amortised amount. Effective Interest goes to investment income
Once you have C/B, revalue to FV. The gain goes to OCI: Gain/(Loss) on investment

Question 7

Purchasing Shares Alt Treatment

Answer 7

If Alternative treatment is mentioned. These aren’t held for trading. Therefore treat as FV through OCI. Initial transaction costs are included, but costs to sell aren’t. Gain goes to OCI

If not mentioned, assume held for trading, ignore transaction costs as they are expensed, and Gain goes to P&L

Question 8

Factoring of Receivables

Answer 8

When receivable initially records:
Dr Receivables, Cr Revenue
With recourse factoring is treated as a loan, so:
Dr Bank, Cr Loan from Factor

Question 9

Financial Instruments

Answer 9

Anything with a contractual obligation to pay or receive cash
E.g. Receivables, Payables, Loan notes etc