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Accounting for Financial Instruments (Financial Assets (Equity (FV through…
Accounting for Financial Instruments
Financial Assets
Equity
FV through P/L
Expense transaction costs
revalue through p/l
therefore changeable profits/ losses
FV through OCI
Capitalise transaction costs
Gains/ losses through OCI
held as reserve, similar to reval surplus
this can be negative
Rules
Cannot be held for trading
Initial recognition of FVOCI must be made
Debt
FV P/L
Expense transaction
Income through P/
Amortised cost
Capitalise transaction costs
Increase investment value using effective interest rate and reduce value of asset
take effective rate to p/l
use actual rate to calculate interest payments
Interest to p/l
payment reduces asset value
closing balance on SOFP
Criteria
business model test
business hold asset to collect cash flow, not for resale
contractual cash flow test
cashflows are either repayment of debt or interest payment on loan
definition
cash/ rightto recieve cash, equity instrument
Financial Liabilities
default - amortised cost
liability increased by effective interest rate
deduct transaction costs (net proceeds)
FV through p/L
expense transaction costs
revalue each year
preference shares
liability
redeemable
annual fixed return + initial stake
payments are finance costs
equity
Regular return however no repayment of stake
payments are dividends
Compound
Debt + equity
split accounting
liability at current market rates
Equity cash received less liability component
unwind discount of PV's using amortised cost at market rate of interest
leave equity as is
DR Equity
CR Retained earnings
