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Professional Accounting Education
Provided by Academy of Professional Accounting (APA)
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ACCA P2 Corporate Reporting(INT.)
公司报告(国际会计准则)
Chapter 11 Financial Instrument
ACCA Lecturer: Roy Wang
ACCA Research Institute
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. 1
Financial Instrument(IAS32,IAS 39,IFRS9,IFRS7)
De-recognition 2
Impairment 3
Disclosure 4
Measurement
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Initial measurement: financial assets
Financial instruments are initially measured at the
transaction price, that is the fair value of the consideration
given.
In the case of financial assets classified as measured at
amortised cost, transaction costs directly attributable to
the acquisition of the financial asset are added to this
amount.
IAS 39 Recognition and Measurement
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Subsequent measurement of financial assets
Under IFRS 9, financial assets are measured subsequent to
recognition either at:
At amortised cost, using the effective interest method, or
At fair value through other comprehensive income,
At fair value through profit or loss
IAS 39 Recognition and Measurement
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Example :Amortized cost
P invested $10,000 in 5% loan notes on 1st July 2014.P had
to pay transaction costs of $500. then loan notes will be
redeemed in 3 years at a premium of $1,255.The effective
interest rate is 7%.
How to do the initial and subsequent measurement for the
above loan note for P.
IAS 39 Recognition and Measurement
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IAS 39 Recognition and Measurement
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Example FV TO P/L
A purchased 15,000 shares at the market price of
$1.62/share on 1st March 2013.Transaction cost was
$1200.At 30th June 2014 the shares are trading at
$1.4/shares.At 30th June 2015 the shares are trading at
$1.85/share.
IAS 39 Recognition and Measurement
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IAS 39 Recognition and Measurement
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Example:FV TO OCI
M invested in 20,000 shares of a listed company not for
trading purpose. The shares cost $1.7 each at 1st March
2014. transaction cost of $2,000 were incurred. At 30th June
2014 their market price was $2.1/share.At 30th June 2015
their market price was $1.6/share.
IAS 39 Recognition and Measurement
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IAS 39 Recognition and Measurement
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Financial liability
1)Keep:Amortised cost
2)Hold for trading:FV TO P/L
IAS 39 Recognition and Measurement
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Keep(not for trading):amortised cost
E.g:loan:FV-costs
Subsequent measurement: At amortized costs
Interest(effective interest):DR: p/l (interest payable)
CR:financial liability
Payment: DR:financial liability
CR:cash
IAS 39 Recognition and Measurement
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Hold for trading:FV TO p/l
Initial measurement :FV + transaction cost
Subsequent measurement
Re-measured to FV at each reporting date;gain or losses
would go into P/L.
Exception:If the FV changes of the financial liability is
because of company’s credit risk changes, then the FV
changes would go into OCI with the remaining go into SOPL.
IAS 39 Recognition and Measurement
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G issue a $30,000 3 year 8% redeemable bond at a discount
of 10% with issue costs of$1,000.
The bond is redeemable at a premium of $1,297.
The effective interest rate is 14%
Show the treatment for the bond over the 3 year
period.(Amortised cost)
IAS 39 Recognition and Measurement
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IAS 39 Recognition and Measurement
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Financial instrument de-recognition:Financial asset
An entity should derecognise a financial asset when:
(a) The contractual rights to the cash flows from the
financial asset expire, or
(b) The entity transfers the financial asset or substantially
all the risks and rewards of ownership of the financial
asset to another party.(Sold)
IAS 39 Recognition and Measurement
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Derecognition :financial liability
A financial liability is derecognised when it is extinguished
– ie when the obligation specified in the contract is cancelled
or expires.
IAS 32 PRESENTATION
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The carrying value of FVTOCI investment(Total) is $35,400.
During the year an investment which had originally cost
$3,000 was sold for cash proceeds of $8,000.
Its fair value as at 30thJune 2014 was $6,500.
The fair value of the remaining investments at 30thJune
2015 was measured at $36,700.
Required:
Show the accounting treatment.
IAS 39 Recognition and Measurement
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IAS 39 Recognition and Measurement
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Compound financial instrument
Convertible debt
Initial Measurement
DR:cash
CR: loan
CR:Equity(bf)
Subsequent measurement
Liability component is measured at amortized cost where the
effective rate would be the rate of similar non-convertible
liability.
Equity component is not remeasured.
IAS 32 compound financial instrument
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Financial asset impairment
FVTPL
FVTOCI
Amortised cost
Financial asset impairment
Expected credit loss
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Expected credit loss model
We simply estimate the future expected loss relating to this
financial asset carried at amortized cost and discount those
losses at the original effective interest rate to give us the
impairment loss. Then we charge it to the P/L and offset
against the financial asset.
Financial asset impairment
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FVTPL
DR:P/L
CR:Financial asset
Financial asset impairment
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Amortised cost
DR:P/L
CR: Financial asset at amortised cost
Financial asset impairment
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On 31stDEC 2014, Hu plc bought a bond for $1m measured
at amortised cost. Coupon interest of 10% the same as
effective interest rate. Repayment is due on 31 DEC 2017(3
year bond).
On 31stDEC 2015 it was estimated that the probability of
default on the bond within the next 12 months would be
0.5%. If default happens within the 1st12 months then Hu plc
estimated that no further interest will be received and that
only 50% of the capital will be repaid on 31 DEC 2017.
Accounting treatment of the financial asset at 31 DEC
2015.
Financial asset impairment
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DR P/L 29
CR Financial asset at amortised cost 29
Financial asset impairment
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FVTOCI
Taking the impairment loss to the p/l using expected loss
model and the balancing figure would go into OCI.
Financial asset impairment
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DISCLOSURE
SOFP
Financial performance and position for each class financial
instrument
Any reclassification, de-recogniton, irrecoverable losses of
financial instrument, breach of loan agreements.
IFRS 7 Disclosure
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SOPL
Separate disclosures for each class of financial
instrument
If financial instrument is not carried at FVTPL then
disclose interest expense on that
Disclose any impairment losses..
IFRS 7 Disclosure
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Other information
FV of financial instrument:how to determine and its
value.
Accounting policy of how to treat financial instrument.
Information about the nature of financial instrument in
detail
IFRS 7 Disclosure
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Risk of financial instrument
Qualitative of risks:
Risk exposure
Risk management
Any changes in risks from previous years
Quantitative of risks:
Credit risk:collateral, maximum exposure at the year end
Liquidity risk:maturity, how to manage this risk
Market risk:market price change.bad debt.interest rate
changes.
IFRS 7 Disclosure
Professional Accounting Education
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