IFRS 9 - FINANCIAL ASSET (Partial disposal of equity instruments held for trading)

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X_Japan888
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IFRS 9 - FINANCIAL ASSET (Partial disposal of equity instruments held for trading)

Post by X_Japan888 »

Hello all,

I need assistance and advice on this particular matter that is bugging me.

An entity (only business activities is to buy/sell shares frequently) has this financial asset that is quoted shares that is held as an investment and due it being equity investments there are at fair value through P/L.

Now here come my query:

There are several transactions throughout the financial period:

1. The initial purchase was 10,000 shares at $1 per share = $10,000

2. The second purchase was 15,000 shares at $2 per share = $30,000 (carrying amount $40k or $1.6 per share weighted average)

3. Then a sale took place of 20,000 shares at $3 per share = $60,000

My question is:

1. When accounting for the sale, which purchase price do we use? The FIFO method for its purchase price vs fair value or the weighted average purchase price vs its fair value?

2. After the the purchase and sales movement and at the end of the financial reporting period, we will need to also measure at FVTPL and that goes back to my question 1.

Entries (ignore transaction cost etc.)

1.

DR Investment in securities (FA) $10k
CR Cash $10k

2.

DR Investment in securities (FA) $30k
CR Cash $30k

3.


DR Cash $60k
CR Investment in securities (FA) ??
CR Fair value gain on disposal of securities ??

--

Thank you guys!
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Marek Muc
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Re: IFRS 9 - FINANCIAL ASSET (Partial disposal of equity instruments held for trading)

Post by Marek Muc »

The carrying amount needs to measured at the derecognition date (IFRS 9.3.2.12), so in your scenario you'll have a fair value gain first:
DR Investments
CR Fair value gain in P&L

and then then the derecognition:
DR Cash
CR Investments

The FIFO question is not applicable as all investments will have the same carrying amount following the fair value remeasurement
X_Japan888
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Joined: 15 Nov 2021, 15:41

Re: IFRS 9 - FINANCIAL ASSET (Partial disposal of equity instruments held for trading)

Post by X_Japan888 »

Hey Marek,

Thank you so much for your reply.

Bless.
X_Japan888
Posts: 5
Joined: 15 Nov 2021, 15:41

Re: IFRS 9 - FINANCIAL ASSET (Partial disposal of equity instruments held for trading)

Post by X_Japan888 »

Dear Marek and others,

For the presentation - I have another question:

1. Can the FV gain/loss be presented at net basis or no at year end or it needs to be separate and no offsetting is allowed. My understanding is for such transactions the FV gain/loss has to be accounted for and presented separately.

2. For an investing trading/deal company such as this, would you term the FV gain as "Revenue" or other income?

For point 1, I have read IAS 1 this para under offsetting but need further affirmation to strengthen the knowledge.

Thanks.
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Marek Muc
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Re: IFRS 9 - FINANCIAL ASSET (Partial disposal of equity instruments held for trading)

Post by Marek Muc »

1. what do you want to offset the FV gains/losses with?
2. You can present it as revenue IMO, make sure to distinguish it from revenue recognised under IFRS 15 (this can be done in the notes)
X_Japan888
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Joined: 15 Nov 2021, 15:41

Re: IFRS 9 - FINANCIAL ASSET (Partial disposal of equity instruments held for trading)

Post by X_Japan888 »

Hello Marek,

Good day.

1. Maybe I should not use the word offset but I was referring to the presentation on the income statement on a net basis. Meaning, all the movement of FV gain and loss is presented on the FS on either net FV gain or loss at year end or should it be presented separately and not on net basis? Meaning, to reflect FV gain for the year (when buying and selling with FV gain) and also FV loss (when buying and selling with FV loss) and not simply present either the net FV gain or loss. Again, these are all equities held for trading and all through FVTPL.

E.g. Reflected separately the FV gain (e.g. revenue) and loss (e.g. administrative expenses)



2. Ok, got it and thanks!

Thanks Marek!
DJP
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Re: IFRS 9 - FINANCIAL ASSET (Partial disposal of equity instruments held for trading)

Post by DJP »

You can present net the gains and losses from the revaluation and realisation of the equities at FVPL, but you cannot mix them admin expenses.
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Marek Muc
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Re: IFRS 9 - FINANCIAL ASSET (Partial disposal of equity instruments held for trading)

Post by Marek Muc »

agreed with DJP, IAS 1.35 applies here:
In addition, an entity presents on a net basis gains and losses arising from a group of similar transactions, for example, foreign exchange gains and losses or gains and losses arising on financial instruments held for trading. However, an entity presents such gains and losses separately if they are material.
X_Japan888
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Re: IFRS 9 - FINANCIAL ASSET (Partial disposal of equity instruments held for trading)

Post by X_Japan888 »

Thats DJP, Thanks Marek.

I have seen this but I supposed "materiality" in this context is another matter altogether.

If you have any other opinions or inputs I will appreciate it.

Bless.
DJP
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Re: IFRS 9 - FINANCIAL ASSET (Partial disposal of equity instruments held for trading)

Post by DJP »

Check this example of illustrative financial statements for investment funds:

https://www.pwc.com/ee/et/home/majaasta ... s-2019.pdf

The value is material and yet is aggreated. (Admin expenses are obvisouly not included as they have a different nature.)

Hope this helps.
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