Ch.4 Financial Instruments- Passive Investment

Question 1

FVTPL

Answer 1

-acquired for the purpose of selling or repurchasing in the near future
- part of a portfolio of the same financial instruments that are managed together
- transaction costs: expensed in NI
Dr investment fees
Cr cash
-Remeasurement: measured at FV, any gain/loss is in NI

Question 2

FVTPL- investment value goes up - JE

Answer 2

initial
Dr investment
Cr cash

adjustment
Dr investment
Cr unrealized gain

Question 3

FVTPL - investment value goes down - JE

Answer 3

initial 
Dr investment 
    Cr cash 
Adjustment 
Dr unrealized profit 
    Cr investment

Question 4

Amortization Cost

Answer 4

• This category includes financial assets held in order to collect contractual cash flows, when the cash flows consist solely of principal and interest.
• transaction cost: added to the cost of investment on BS
• remeasurement: amortized using effective interest method - impairment cost

Question 5

Impairment - amortization cost

Answer 5

PV of estimated future cash flows using ORIGINAL effective rate

Question 6

Amortization cost - JE

Answer 6

Dr investment (purchase amount) 
    Cr cash (purchase amount) 

Coupon rate>effective rate(market)
Dr cash (coupon rate*Face)
     Cr interest revenue (investment*effective)
     Cr investment (difference)

Coupon rate

Question 7

FVOCI

Answer 7

• investment as not qualify for held for trading
• held for collecting cash flows
  and to sell the instrument
  eg investment in another company
  transaction costs: added to the cost of investment
  remeasurement:

Question 8

FVOCI - remeasurement debt

Answer 8

debt - amortization cost using effective interest rate method - impairment loss
any gain loss reported in OCI
sold: cumulative gains/losses taken out of OCI realized in NI
impairment: reported in NI,
Dr investment (the amount it went up)
Cr deferred tax (amount it went up30%1/2)
Cr Unrealized gain (difference)

Dr unrealized loss
Cr investment
Cr deferred tax

Question 9

FVOCI - remeasurement equity

Answer 9

Equity - amortization cost using effective interest rate method - impairment loss
any gain loss reported in OCI
sold: cumulative gains/losses transferred from OCI to Shareholders equity account such as RE

Question 10

Sale - FVTPL JE

Answer 10

Dr Cash
Cr Investment
Cr Gain on sale (realized)

Dr cash (full rn)
    Cr investment (full rn)

Dr AOCI
Cr RE

Question 11

Sale - FVOCI

Answer 11

Dr investment (the amount went up)
     Cr deferred tax
     Cr urealized gain

Question 12

ASPE VS IFRS

Answer 12

• amortized cost is used, ASPE allows the use of both the effective interest method and the straight-line method in the application of amortized cost
• ASPE does not have OCI: all gains and losses are reported directly in net income.