DEPARTMENT OF ACCOUNTING AND FINANCE

During the year X0, company BROKER SA carries out the following transactions in
connection with its portfolio of financial assets:

1. On 3-1-X0, the company buys 2,000 shares of the company ALFA for €17/share. Brokerage
fees amount to 2 per thousand (exempt from VAT). Account for the acquisition of these
financial assets if the company classifies them as “at fair value through changes in equity”.

2. On 10-1-X0, the company subscribes 1,500 shares of a newly formed company (JOTA). This
company is incorporated with a share capital of €250,000, which is divided into shares of €10
of nominal value. On the subscription date, the minimum amount required by Spanish
legislation is paid in cash, along with some initial expenses of €75 (exempt from VAT).
BROKER SA accounts for this investment in the category “financial assets at fair value
through changes in equity”.

3. On 15-2, the company buys 1,200 bonds of company BETA for €11.50 per bond. The
company also pays €65 as brokerage fees (exempt from VAT). These bonds were issued on
the 1-8 of the previous year. They will be reimbursed at par value (€10) on 31-7-X1 and the
interest rate is 6% per year, payable six-monthly in arrears (on the 31-1 and 31-7 each year).
The intention of BROKER SA with respect to these bonds is not defined at the acquisition
date. BROKER SA accounts for this investment in the category “financial assets at fair value
through changes in equity”.

4. On 31-3, the company buys 2,000 shares of company TERMO, which is listed on the Stock
Exchange. Management’s intention is to make a profit from its cash surpluses in the short
term. The quoted price of the shares at the acquisition date is €18.27 per share. On 1-3,
TERMO had approved the distribution of an interim dividend of €0.25/share, on account of
the profit of the previous year, that will be paid on 10-5. Brokerage fees (exempt from VAT)
amount to 1% of the purchase price.

5. On 10-5, the company collects the dividend from these shares.

6. On 15-6, BROKER SA grants a €60,000 loan to a company within the same group that has
to be reimbursed in full in 2 years. The interest rate (subject to withholding tax) is established
at 3% per year, and it is payable six-monthly in arrears (on 15th June and 15th December
each year).

7. On 1-8, BROKER SA sells a machine whose acquisition cost was €100,000. The machine
was bought 7 years ago with an estimated useful life of 10 years (straight-line method of
depreciation). The selling price according to the invoice is €50,000, but the buyer asks for a
deferral of the payment and BROKER SA finally agrees to receive €25,000 plus all the VAT in
cash and €26,250 in one year (the surcharge is exempt from VAT). Account for the sale of the
machine and the related transactions at 31-12.

8. BROKER SA owns 500 shares of company ROMA classified as “at fair value through
changes in equity”. On 15-9, ROMA carries out a capital increase (2-for-5). The issue value of
the shares is 130% over the nominal value (€10). Upon subscription, 50% of the share capital
Practical Exercises 1
Financial Accounting II
 DEPARTMENT OF ACCOUNTING AND FINANCE

increase and the share premium is paid in cash. BROKER SA subscribes 500 shares and buys
the necessary pre-emptive rights at €0.50/right.

9. On 1-10-X0, the Board of Directors of company JOTA (shares bought in Section 2) requires
the payment of a capital call of 25% of the nominal, which is paid on the 15-11.

Additional information:

- Withholding tax rate on capital income: 19%.

- All the transactions are exempt from VAT.

Work to do:

1. Accounting entries for the year X0.

2. Account for the acquisition of bonds described in Section 3 assuming that

management’s intention is to sell them in the short term.

Practical Exercises 2
Financial Accounting II