Skip to content

CA Final · Financial Reporting · Recognition and Derecognition of Financial Instruments

Kaveri Investments Ltd buys listed equity shares through a regular way purchase on 28 March at Rs 10,00,000, with settlement on 2 April. The shares are classified as financial assets at fair value through profit or loss, and the company applies settlement date accounting. At the reporting date, 31 March, the fair value of the shares is Rs 10,60,000. What is the accounting treatment at 31 March?

Kaveri recognises a Rs 60,000 gain in profit or loss at 31 March. With settlement date accounting, the change in fair value between trade and settlement date is treated as for the acquired asset, and for an FVTPL asset that means profit or loss. Fair value of 10,60,000 less cost of 10,00,000 gives 60,000.

  1. ARecognise a gain of Rs 60,000 in other comprehensive income
  2. BRecognise no change in value, as for assets at amortised cost, until delivery
  3. CRecognise a gain of Rs 60,000 in profit or lossCorrect
  4. DRecognise a gain of Rs 10,60,000 in profit or loss

Explanation

Under settlement date accounting, the change in fair value between trade date and settlement date is accounted for in the same way as for the acquired asset. For an asset at FVTPL, the change goes to profit or loss. The gain is 10,60,000 - 10,00,000 = Rs 60,000. Nil recognition applies only to assets at amortised cost, and OCI applies only to FVOCI assets.

Did you get it right without looking?

One question tells you little. A timed set on Recognition and Derecognition of Financial Instruments shows your real accuracy, how long you take and where you lose marks.

Practise Recognition and Derecognition of Financial InstrumentsFree diagnostic mock

More Recognition and Derecognition of Financial Instruments questions