(1) Norman bought 100,000 shares in a listed company on 1 November 2015. Each share cost...

 

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(1) Norman bought 100,000 shares in a listed company on 1 November 2015. Each share cost $5 to purchase and a fee of $0.25 per share was paid as commission to a broker. The fair value of each share at 31 December 2015 was $3.50. Answer The investment in shares is initially recognised at $500,000 on the statement of financial position as an asset. The transaction costs are recognised immediately through profit or loss as the shares are classified as fair value through profit or loss. At the reporting date the shares are re-measured to their fair value of $350,000 on the statement of financial position. A loss on the investment is recognised through profit or loss of $150,000. (2) Norman bought 200,000 shares in a listed company on 1 March 2015 for $500,000. Incurring transaction cost of $40,000. Norman acquired the shares as part of a long term strategy to realise the gains in the future. The fair value of the shares was RM620,000 at 31 December. The shares were subsequently sold for RM650,000 on 31 January 2016. (3) Norman bought 10,000 debentures at a 2% discount on the par value of RM100. The debentures are redeemable in 4 years at a premium of 5%. The coupon rate attached to the debenture is 4%. The effective rate of interest on the debenture is 5.73%. Explain how each of the above financial assets will be accounted for in the financial statements. (1) Norman bought 100,000 shares in a listed company on 1 November 2015. Each share cost $5 to purchase and a fee of $0.25 per share was paid as commission to a broker. The fair value of each share at 31 December 2015 was $3.50. Answer The investment in shares is initially recognised at $500,000 on the statement of financial position as an asset. The transaction costs are recognised immediately through profit or loss as the shares are classified as fair value through profit or loss. At the reporting date the shares are re-measured to their fair value of $350,000 on the statement of financial position. A loss on the investment is recognised through profit or loss of $150,000. (2) Norman bought 200,000 shares in a listed company on 1 March 2015 for $500,000. Incurring transaction cost of $40,000. Norman acquired the shares as part of a long term strategy to realise the gains in the future. The fair value of the shares was RM620,000 at 31 December. The shares were subsequently sold for RM650,000 on 31 January 2016. (3) Norman bought 10,000 debentures at a 2% discount on the par value of RM100. The debentures are redeemable in 4 years at a premium of 5%. The coupon rate attached to the debenture is 4%. The effective rate of interest on the debenture is 5.73%. Explain how each of the above financial assets will be accounted for in the financial statements.