Solution – Financial Instruments

Brick plc

i) The company holds equity shares which are less than 20% of the equity of issuing company.

In addition, an irrevocable election was made to recognise the shares at fair value through other comprehensive income
(FVTOCI).

The equity shares are clearly defined as financial instruments. They are classified as FVTOCI and are initially recognised at
fair value plus transaction costs.

31.3.20X3

Initial investment in Oil plc £6,142,000

(850000 x £7.12) + 90,000

Statement of financial position

Financial assets 3,570,000

850000 x £4.20

Equity

Other comprehensive income (Loss) 2,572,000

A loss of £2,572,000 should be debited to other comprehensive income (6,142,000-3,570,000)

DR Other Comprehensive Income £2,572,000

CR Financial assets 2,572,000

ii) This is an investment in option - derivatives and should be classified in the FVTPL account. The change in the option value
will be recognised in the income statement. The option value will be reported at fair value in the statement of financial
position.

Initial option value £625,000

Option at the reporting date 835,000

Gain on call option 210,000

Statement of financial position

Financial asset – option £835,000

Income statement

Gain on call option 210,000

DR Financial assets (option) £210,000

CR Income statement (gain) 210,000