IFRS 9 - Financial Instruments (subsequent measurement) Flashcards
An instrument classified as at amortised cost, is measured at?
FV + transaction costs
- repayments
+- cumulative amortisation using the effective interest method
- any reduction for impairment or uncollectability
What is the effective interest rate of a bond
listed at R1 814 269 with transaction costs of R5 000, coupon of 10%, time to maturity of 3 years and a Par of R2 000 000?
PV = R1 819 269 pmt = - R 200 000 FV = - R2 000 000 n = 3 i = 13,885
How is a bond listed at R1 814 269 with transaction costs of R5 000, coupon of 10%, time to maturity of 3 years and a Par of R2 000 000 recognised at initial measurement? Give the GJ entries.
DR…Bond…………………………1 819 269
….CR………Bank…………………………………1 819 269
[1 814 269 + 5 000]
How is a bond listed at R1 814 269 with transaction costs of R5 000, coupon of 10%, time to maturity of 3 years and a Par of R2 000 000 subsequently measured? Give the GJ entries for year 1.
Year 1:
Dr……Bank……………………………..200 000
…..Cr………..Bond…………………………………….200 000
(2 000 000 x 10%)
Dr……Bond……………………………..252 605
…..Cr…………Interest income…………………..252 605
(1 819 269 x 13.885%)
How is a bond listed at R1 814 269 with transaction costs of R5 000, coupon of 10%, time to maturity of 3 years and a Par of R2 000 000 subsequently measured? Give the GJ entries for year 2.
Year 2:
Dr……Bank…………………………….200 000
…..Cr………..Bond…………………………………..200 000
(2 000 000 x 10%)
Dr……Bond…………………………….259 909
…..Cr…………Interest income…………………259 909
[(1 819 269 + 52 605) x 13.885%]
When a debt instrument measured at FV through OCI is derecgonised, what happens to the OCI balance?
OCI balance must be reclassified to P/L
What is recognised in the P/L i.t.o. the subsequent measurement of a debt instrument measured at FV through OCI?
- Interest (using effective interest method)
- Impairment gains or losses
- Foreign exchange gains and losses
Where are FV adjustments of a debt instrument measured at FV through OCI recognised?
Other Comprehensive Income
Where is any gain/loss on the FV adjustment on an Equity Instrument at FV through OCI recognised?
Recognised in OCI (mark-to-market reserve: equity instruments)
What must be done at the derecognition of an Equity Instrument at FV through OCI?
Transfer cumulative gains/loss in equity directly to Retained Earnings.(SCE)
What must be done with dividends of an Equity Instrument at FV through OCI?
Dividends received on these investments are recognised in profit or loss
UNLESS
Divs represent RECOVERY of the COST of the investment»_space;> recognise in OCI
as
credit to the mark-to-market reserve: equity instrument
Class Example 4:
On 1 January 20X1 A Ltd acquired 10 000 shares in B Ltd at a cost of R5 per share. Transaction costs amounted to R1 000. The fair value of B Ltd’s shares increased to R5,20 on 31 December 20X1 (year-end). These shares were disposed of at R5,25 on 31 January 20X2. Assume that the shares are classified as a financial asset at fair value through other comprehensive income.
Give the GJ entries at Initial Recognition.
DR….Investment………………………………..51 000
…..CR………..Bank…………………………………………..51 000
[(10 000 x 5) + 1 000]
Class Example 4:
On 1 January 20X1 A Ltd acquired 10 000 shares in B Ltd at a cost of R5 per share. Transaction costs amounted to R1 000. The fair value of B Ltd’s shares increased to R5,20 on 31 December 20X1 (year-end). These shares were disposed of at R5,25 on 31 January 20X2. Assume that the shares are classified as a financial asset at fair value through other comprehensive income.
Give the GJ entries at 31/12/20X1.
DR…….Investment………………………..1 000
…..CR…..Mark-to-market reserve: Equity instrument (OCI) 1 000
(Subsequent measurement at year-end = R52 000)
[(10 000 x 5,20) – 51 000]
Class Example 4:
On 1 January 20X1 A Ltd acquired 10 000 shares in B Ltd at a cost of R5 per share. Transaction costs amounted to R1 000. The fair value of B Ltd’s shares increased to R5,20 on 31 December 20X1 (year-end). These shares were disposed of at R5,25 on 31 January 20X2. Assume that the shares are classified as a financial asset at fair value through other comprehensive income.
Give the GJ entries at 31/12/20X2.
DR….Investment………………………….500
…..CR……..Mark-to-market reserve: Equity instrument (OCI)…500
(Subsequent measurement on date ofdisposal)
[(10 000 x 5,25) – 52 000]
DR….Bank (10 000 x 5,25)…………52 500
CR….Investment (51 000 + 1 000 + 500)……….52 500
(Disposal of shares)
DR…Mark-to-market reserve: Equity instrument (OCI) 1 500
…..CR………Retained earnings…………………………………………………1 500
(Cumulative gain in equity transferred to retained earnings
Class Example 5:
On 1 January 20.1 A Limited acquires 10 000 debentures in B Limited at R5 per debenture. Transaction costs is R1 000. The debentures carries interest at 10% p.a. on a face value of R50 000 and are redeemable at R56 000
after 5 years. These debentures are designated at fair value through profit or loss. Its fair value at the end of December 20.1 and 20.2 is R5.20 and R5.35 respectively. It is the company’s policy to show interest income and fair value adjustments on debt instruments separately. Assume that the debentures were never credit-impaired and that credit losses were not expected.
The debentures were sold on 1 January 20.3 for R5.40 per debenture.
Give the GJ entries for 20.1
DR…Debentures – (Financial asset at fair value through P/L) (SFP)……50 000
…..CR…………Transaction costs………………………………………………………..1 000
…..CR…………Bank……………………………………………………………………………51 000
DR…….Bank Payment as coupon rate……..5 000
DR…….Debentures……………………………………….946
…..CR……………………Interest income (P/L)……………5 946
DR…..Debentures……………………………….1 054
……CR……………..Fair value adjustment (P/L)…………1 054
(52 000 – 50 946)
