AMAHLEÂ LIMITED holds the following investments:
|
CU |
||
| 1,000 ordinary shares in AB Limited at cost | 1,000 | |
| 10,000 ordinary shares in FG Limited at cost | 8,000 | |
| 9,000 | ||
| At reporting date, the shares are fairly valued on the JSE Limited as follows: | ||
| AB Limited | CU1,50 each | |
| FG Limited | CU0,80 each | |
Ignore transaction costs.
REQUIRED
Determine the value at which investments would be presented in the statement of financial position of Amahle Limited if the above mentioned investments are:
- Financial assets at fair value through other comprehensive income;
- Financial assets at fair value through profit or loss.
Prepare the general journal entry to account for the fair value adjustment on the reporting date for each of the above situations.
🇿🇦 Amahle, meaning “the beautiful one”, is a popular Zulu name and is pronounced Ah-MAH-she.
SOLUTION
Part 1
Financial assets at fair value through other comprehensive income
At year end (subsequent measurement), the investments would be valued at fair value.
|
|
CU |
| 1,000 ordinary shares in AB Limited(1,000 x CU1,50) | 1,500 |
| 10,000 ordinary shares in FG Limited(10,000 x CU0,80) | 8,000 |
| Value presented in the statement of financial position of Amahle Limited | 9,500 |
Financial assets at fair value through profit or loss
At year end (subsequent measurement), the investments would be valued at fair value
|
Value presented in the statement of financial position of Amahle Limited (calculations above would be applied here too) |
CUÂ 9,500 |
Part 2
Financial assets at fair value through other comprehensive income
| DR
CU |
CR
CU |
|
| Investment (SFP) | 500 | |
| Mark-to-market reserve on equity instruments* (OCI) | 500 |
* This is not a nominal ledger account but is part of equity. The fair value adjustment would be presented in the bottom section of the statement of profit or loss and other comprehensive income in the “Other comprehensive income” section and from there, it would be presented on the face of the statement of changes in equity. It must not be presented in the profit or loss of the statement of profit or loss and other comprehensive income since it does not form part of the “Profit for the year” of the entity.
Financial assets at fair value through profit or loss
| DR
CU |
CR
CU |
|
| Investment (SFP) | 500 | |
| Fair value adjustment * (P or L) | 500 |
* This is a nominal ledger account and will be closed off to the statement of profit or loss and other comprehensive income and included in the profit or loss section of this statement. This means that it is taken into account in calculating the “Profit for the year” of the entity.
