Lecture 4

Financial Assets valued ‘At fair value through

other comprehensive income’
Lecture 4 will be outlined as follows:

• Classification of financial assets valued ‘at fair value through

other comprehensive income’
• Initial measurement and subsequent measurement
• Example 1
• Example 2
• Question: Varsity Limited
Classification IFRS
9.4.1.2A

• A financial asset will be classified as ‘at fair value through

other comprehensive income if:

• The asset is held within a business model with the

objective collecting cash flows and selling the asset; and

• The contractual terms of the financial asset give rise on

specific dates to cash flows that are payments of principal
and interest on the principal amount outstanding.
Examples of financial assets classified at fair value
through other comprehensive income:

Loans and receivables.

Investments in equity instruments. Dividends are

recognized when the entity’s right to receive payment is
established.
Initial and subsequent measurement
• Initial measurement : At fair value plus transaction costs.
• Subsequent measurement: At Fair value.
• Gains and losses on remeasurement are recognize in other
comprehensive income through the ‘Mark-to market reserve’
account.

Paragraph 12.3.3 of the

prescribed textbook
Example 1
A financial asset classified as ‘at fair value through other
comprehensive income’ is acquired for R2 000. A purchase
commission of R50 is paid in respect of this transaction. Initially, the
financial asset is recorded at R2 050 and the R50 commission
(transaction costs) is included in the cost of the investment since this
is the prescribed treatment for this type of financial asset in terms of
IFRS 9.
At the next reporting date, the quoted market price of the asset is
R2 400. The asset will then be restated to the value R2 400 which will
result in a fair value adjustment of R350 (R2 400 – R2 050)
recognized in other comprehensive income. (e.g. debit the value of
the Investment in the SFP with R350 and credit the ‘other
comprehensive income’ account in the Statement of Profit or Loss
and Other Comprehensive Income)
Example 2

• On 1 January 20.19 a company purchased 5 000 shares in

Wurtenburg Ltd at R13,50 per share. Brokerage fees of R1 000
is incurred.
• The fair valueon 31 December 20.19, the end of the reporting
period, was R14 per share.
Comments:

On 1 January 20.19, the date of initial recognition, the investment in the shares
is recognised at the fair value of R13,5 per share.
The Investment in Shares calculated as follows:
(5 000 shares x R13,50)+R1 000 = R68 500
According to IFRS 9, transaction costs is included in the cost of an
investment measured at ‘fair value through other comprehensive income’.
Comments:

The subsequent measurement of a financial asset valued ‘at fair value through
other comprehensive income’ is at fair value. The fair value at the end of the
reporting period is R14 per share. The value of the investment in the accounting
records must be R70 000 (R14 x 5 000 shares) on the reporting year end
31 December 20.19.

The investment account in the Statement of Financial Position must be increased

with R1 500 by debiting the latter account and crediting the Mark to Market reserve
in the Statement of Other Comprehensive Income. The amount of R1 500 is
calculated as follows:
(5 000 shares x R14)-R68 500
REQUIRED:
Journal entries for the following dates:
(a) 1 July 20.17
(b) 30 June 20.18
(c) 30 June 20.19
Answers are to comply with IFRS. Round all amounts to the nearest Rand. Show all calculations clearly. Assume
that all items and amounts are material except where the information clearly indicates otherwise.
Clearly indicate which component, part, and/or item of the financial statements will be affected by any journal entry.
Statement of Profit or loss: SPL;Other Comprehensive Income: OCI;
Statement of Changes in Equity: SCE; Statement of Financial Position: SFP