Scribd
Upload
316 views2 pages

Question 1: Ifrs 9 - Financial Instruments

The investments must be classified and measured according to IFRS 9. The shares in Alpha Limited are classified as fair value through profit or loss since they are held for trading. The shares in Beta Limited are classified as fair value through other comprehensive income since they are held long-term. The debentures in Gamma Limited are classified as fair value through profit or loss since the business model test is not passed, even though it is a debt instrument. The debentures in Theta Limited are classified as amortized cost since the business model and cash flow tests are passed. The financial statements will reflect fair value or amortized cost carrying amounts as of June 30, 2009 for the investments, as

Uploaded by

amitsinghslideshare
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
316 views2 pages

Question 1: Ifrs 9 - Financial Instruments

The investments must be classified and measured according to IFRS 9. The shares in Alpha Limited are classified as fair value through profit or loss since they are held for trading. The shares in Beta Limited are classified as fair value through other comprehensive income since they are held long-term. The debentures in Gamma Limited are classified as fair value through profit or loss since the business model test is not passed, even though it is a debt instrument. The debentures in Theta Limited are classified as amortized cost since the business model and cash flow tests are passed. The financial statements will reflect fair value or amortized cost carrying amounts as of June 30, 2009 for the investments, as

Uploaded by

amitsinghslideshare
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

IFRS 9 Question 1

QUESTION 1: IFRS 9 – FINANCIAL INSTRUMENTS


The details of investment extracted from the books of Finance Limited for the year ended June 30,
2009 show the following:
Date of Qty Cost Market Date of
Purchase Price Maturity
(Rs.000) (Rs.000)
Shares in Alpha Limited 1-Oct-08 18,000 441 576 N/A
Shares in Beta Limited 1-Nov-08 24,500 1,960 1,911 N/A
14% Debentures in Gamma Ltd
1-Jul-08 1,800 9,090 9,360 30-Jun-11
(face value - Rs.5,000)
16% Debentures in Theta Ltd
1-Jan-09 650 3,185 N/A 31-Dec-11
(face value - Rs.5,000)

The company is aware of the fact that it needs to apply IFRSs on the above investments.
However, due to inadequate knowledge of the requirements of the Standard, the accountant has
approached you for an advice.

He informs you that the investment made in the shares of Alpha Limited was with the intention of
making short-term gain in expectation of upward momentum in stock market activity, whereas the
shares in Beta Limited are high dividend-yielding and the company intends to hold it for the long-
term.

The debentures in Gamma Limited were also acquired with the intention of short-term profit
making. However, the company later changed its intention and now wishes to hold it till maturity.
The debentures in Theta Limited are acquired with a firm intention to hold these till maturity. Both
these debentures are to be redeemed at their face values. The coupon payments are made on
yearly basis on June 30 and December 31. The original effective rate of interest on debentures of
Gamma Limited is 13.58% while on debentures of Theta Limited is 16.91%.

Required:
(i) Advise the accountant about the classification of above investments in the books of the
company in accordance with the IFRSs along with reasons. (04)
(ii) State the amount at which each of the above investments will be carried in the statement of
financial position as at June 30, 2009 (definitions of various categories of financial assets
as per IFRSs are not required). Also calculate the impact to be reflected in the 'statement of
profit or loss' or 'other comprehensive income' for the year ended June 30, 2009. (06)

ICMAP 501 – November 2009 – Q4a

Page 1 of 2 (kashifadeel.com)
IFRS 9 Question 1

ANSWER TO QUESTION 1: IFRS 9 – FINANCIAL INSTRUMENTS

Part (i)
Shares in Alpha Limited
This shall be classified as ‘fair value through profit or loss’ because it is equity investment in
another entity with intention to hold it for trading.

Shares in Beta Limited


This shall be classified as ‘fair value through other comprehensive income’ because although it is
equity investment in another entity but there is no intention to hold it for trading.

Debentures in Gamma Limited


Although it is a debt instrument of another entity yet business model test is not passed as entity
initially had an intention of short term profit making. Therefore, it shall be classified as ‘fair value
through profit or loss’. There shall be no reclassification on subsequent change of intention.

Debentures in Theta Limited


This is investment in debt instrument of another entity and business model test and cash flow
characteristics model test appear to have passed, therefore, it shall be classified as ‘at amortised
cost’.

Part (ii)
Shares in Alpha Limited Rs. 000
Initial recognition 441
Subsequent recognition SFP as at June 30, 2009 (fair value) 576
Gain on re-measurement in profit or loss [576 – 441] 135

Shares in Beta Limited Rs. 000


Initial recognition 1,960
Subsequent recognition SFP as at June 30, 2009 (fair value) 1,911
Loss on re-measurement in other comprehensive income [1,960 – 1,911] (49)

Debentures in Gamma Limited Rs. 000


Initial recognition 9,090
Subsequent recognition SFP as at June 30, 2009 (fair value) 9,360
Gain on re-measurement in profit or loss [9,360 – 9,090] 270

Debentures in Theta Limited Rs. 000


Initial recognition 3,185
Subsequent recognition SFP as at June 30, 2009 [3,185 + 269 – (16% x 5,000 x 6/12)] 3,054
Interest income in profit or loss [3,185 x 16.91% x 6/12] 269

Page 2 of 2 (kashifadeel.com)

You might also like