Skip to content

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

Veda Securities Ltd agrees on 28 March to buy a government bond in a regular way purchase, to be classified at amortised cost. Delivery is on 2 April and the reporting date is 31 March. The entity uses settlement date accounting. The bond's fair value rises from Rs 100 lakh on 28 March to Rs 103 lakh on 31 March. What is recognised in the 31 March financial statements for this bond?

Nothing is recognised at 31 March. With settlement date accounting the asset is recognised only when received on 2 April. For an asset classified at amortised cost, fair value changes between trade date and settlement date are not recognised, so no asset and no gain appear.

  1. ANo asset and no fair value change is recognised, because the asset is not yet received and the change is not recognised for amortised cost assetsCorrect
  2. BThe bond at Rs 100 lakh, with a Rs 3 lakh gain in profit or loss
  3. CThe bond at Rs 103 lakh, with a Rs 3 lakh gain in other comprehensive income
  4. DThe bond at Rs 100 lakh, with the Rs 3 lakh increase deferred as a liability

Explanation

Under settlement date accounting the asset is recognised only when received, which is 2 April. For the period between trade date and settlement date, the change in value is not recognised for assets measured at amortised cost. So at 31 March nothing is recognised. Booking the Rs 3 lakh in profit or loss applies only to FVTPL 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