Class notes
ACCOUNTING
- Course
- FRK300 (FRK300)
- Institution
- University Of Pretoria (UP)
Lecture notes of 3 pages for the course FRK300 at UP (NOTES)
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1 21. Assume that an entity implements a business model with the objective of holding a 4. To which category will you allocate the following financial asset?
financial asset in order to collect contractual cash flows (carried at amortised cost) that
are solely payments of principal and interest on the principal outstanding, on specified The financial asset is held within a business model that has the objective of holding
dates. assets in order to collect contractual cash flows and selling financial assets:
a. Financial asset at fair value through profit or loss – designated;
In terms of IFRS 9 no contractual terms may be present that would change the timing or b. Financial asset at fair value through profit or loss – mandatorily;
amount of the payments of principal and interest, otherwise the financial asset may not c. Financial asset at amortised cost;
be classified as at amortised cost. d. Equity instrument at fair value through other comprehensive income;
*e. Debt instrument at fair value through other comprehensive income.
Three exceptions to the rule are allowed. Which one of the following items is not one of
these exceptions? 5. When a share investment that was held as an investment in an equity instrument at
fair value through other comprehensive income is sold, the fair value adjustments that
a. A variable interest; were previously taken to the mark-to-market reserve for equity instruments, must be
*b. Leverage of the capital; dealt with as follows:
c. A prepayment option / call option held by the issuer or a put option held by the investor;
d. An extension option. a. The mark-to-market reserve for equity instruments is recognised as a non-current
liability in the statement of financial position;
2. Choose the correct option below. When a financial asset that was recognised in the b. It is realised and taken back through the other comprehensive income to profit or
category “Debt instrument at fair value through other comprehensive income” is sold: loss as a fair value adjustment;
*c. It is realised and transferred directly to retained earnings in the statement of
a. The fair value adjustment is recognised directly in the statement of profit or loss; changes in equity;
b. The fair value adjustment is recognised through other comprehensive income to the d. Recognised directly in the statement of profit or loss as a fair value adjustment;
mark-to-market reserve for debt instruments. The balance in this mark-to-market e. None of the above.
reserve is then transferred to the retained earnings;
*c. The fair value adjustment is recognised through other comprehensive income to the 6. Bontle Limited has a 55% interest in Codi Limited and controls Codi Limited since
mark-to-market reserve for debt instruments. The balance on this mark-to-market 1 January 2015. Both companies have a 31 December financial year-end. Codi
reserve is then recycled and recognised in the statement of profit or loss; Limited has sold inventory to Bontle Limited at cost plus 35% since 1 January 2015.
d. The fair value adjustment is recognised through other comprehensive income to the On 31 December 2017, Bontle Limited had the following inventories on hand that
mark-to-market reserve for debt instruments. The balance on this mark-to-market were purchased from Codi Limited:
reserve is then recognised as a liability in the statement of financial position;
e. There is no fair value adjustment or recognition of profit or loss, since the asset is R
sold. Inventories 210 000
3. On 30 May 2019, Greatdeal Limited purchased 10 000 shares in BigDiv Limited at Calculate the original cost of the inventories for Codi Limited.
R52 000 (cum div / including dividend). Greatdeal Limited elected to designate the
shares as an equity instrument at fair value through other comprehensive income. a. R54 444
b. R73 500
On 30 June 2019, Greatdeal Limited received a R20 000 dividend from BigDiv Limited. *c. R155 556
The dividend represents a recovery of the cost of the investment. Which of the following d. R136 500
options is the correct treatment of the dividend received?
a. Recognise the dividend of R20 000 directly in retained earnings;
b. Recognise the R20 000 as a dividend received in the statement of profit or loss;
c. Credit the asset - “Investment in BigDiv Limited” directly with R20 000;
*d. Credit the mark-to-market reserve for equity instruments via the statement of other
comprehensive income with R20 000;
e. Recognise the R20 000 dividend received in the statement of changes in equity.
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