Financial instruments: Recognition and measurement

1. KEY DEFINITIONS

Key definitions

A financial instrument is a contract that gives rise to both:

 A financial asset in one entity, and

 A financial liability or equity instrument in another entity.

A financial asset is any asset that is:

 cash;
 An equity instrument of another entity;
 A contractual right:
- to receive cash or another financial asset from another entity; or
- to exchange financial assets or financial liabilities with another entity under conditions that are
potentially favorable to the entity
 Certain contracts to be settled in the entity’s own equity instruments

A financial liability is any liability that is

 A contractual obligation:
- To deliver cash or another financial asset to another entity; or
- To exchange financial assets or financial liabilities with another entity under conditions that are
potentially unfavorable to the entity.
 A contract to be settled in the entity's own equity instruments, that is either a:
- Non-derivative involving a variable number of shares, or a
- Derivative involving a fixed number of shares

Financial instruments include:

 Cash/Bank
 Investment in Shares
 Loans
 Debentures/Bonds
 Accounts receivable or accounts payable; and
 Derivatives.

Note: Derivatives and Impairment loss are not part of the syllabus at CAF Level.

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2. GAAP FOR FINANCIAL INSTRUMENTS

2.1 Background

The rules on financial instruments are set out in three accounting standards:

 IAS 32: Financial instruments: Presentation;

 IFRS 7: Financial instruments: Disclosure; and
 IFRS 9: Financial Instruments

Question: AJI PANCA LTD

On 1 January Year 1 Aji Panca Ltd has the following capital and reserves.

Equity Rs.

Share capital (Rs. 1 ordinary shares) 1,000,000

Share premium 200,000

Retained earnings 5,670,300

––––––––––

6,870,300

––––––––––

During Year 1 the following transactions took place.

1 January An issue of Rs. 100,000 8% Rs. 1 redeemable preference shares at a premium

of 60%. Issue costs are Rs. 2,237. Redemption is at 100% premium on 31

December Year 5. The effective rate of interest is 9.5%.

31 March An issue of 300,000 ordinary shares at a price of Rs. 1.30 per share. Issue costs,

net of tax benefit, were Rs. 20,000

30 June A 1 for 4 bonus issue of ordinary shares. Profit for the year, before accounting for

the above, was Rs. 508,500. The dividends on the redeemable preference shares

have been charged to retained earnings.

Required

Set out capital and reserves and liabilities resulting from the above on 31 December Year 1.

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3. RECOGNITION AND MEASUREMENT

3.1 Recognition of financial instruments

An entity shall recognize a financial asset or a financial liability in its statement of financial position
when, and only when, the entity becomes party to the contractual provisions of the instrument.

A financial asset might be an investment in debt or in equity.

3.2 Classification of financial assets

Financial assets are essentially classified based on the two basic measurement models of

Amortized cost and fair value. However, there are actually four formal classifications due to the three
possible accounting treatment of the gains or losses under the fair value model:

 Amortized cost (AC)

 Fair value through profit or loss (FVPL)
 Fair value through other comprehensive income for debt instruments (FVOCI - D)
 Fair value through other comprehensive income for equity instruments (FVOCI - E)

This classification is made on the basis of both:

 the business model for managing the financial assets and

 The contractual cash flow characteristics of the financial asset.

Financial assets at amortised cost

A financial asset must be measured at amortized cost if both of the following conditions are met:

 the asset is held within a business model whose objective is to hold assets in order to collect
contractual cash flows (i.e. no intention to trade in the instruments); and
 the contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding (Investments in equity
instruments e.g. ordinary shares fail this test since they do not offer contractual cash flows at all,
hence equity investments are never classified as financial assets at amortized cost.)

Important Note:

However, a financial asset that meets both these requirements be classified at AC, however, it may also
be designated as fair value through profit or loss (FVPL) instead if classifying at AC Would have caused
an accounting mismatch.

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Amortised cost criteria - commentary

The rules try to limit the use of amortized cost to those situations where it best reflects the substance of
the transactions. Therefore, it can only be used by a company whose business model is to make loans
and collect future repayments.

A company might sell a loan before its maturity. This does not preclude classification of loans at
amortized cost as long as the company’s overall business model is to hold assets in order to receive
contractual cash flows.

On the other hand a company might hold a portfolio of loans in order to profit from the sale of these
assets when market conditions are favorable. In this case the company’s business model is not to hold
assets in order to receive contractual cash flows. The loans in this portfolio must be measured at fair
value.

Financial assets at fair value through other comprehensive income for Debt Instruments

A financial asset (Debt Instrument) must be measured at fair value through other comprehensive
income if both of the following conditions are met:

 the financial asset (Debt Instrument) is held within a business model whose objective is achieved by
both collecting contractual cash flows and selling financial assets and
 the contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.

Important Note:

However, a financial asset that meets both these requirements, and should thus be classified at FVOCI,
may be designated as fair value through profit or loss (FVPL) instead if the FVOCI classification would
cause an accounting mismatch

Financial assets at fair value through other comprehensive income for Equity Instruments

This classification is one that may be elected if the Financial Asset is an:

 Investment in equity instruments

That is

 not held for trading &

 not a contingent consideration under IFRS 3 business combination

Further, this election is

 Only possible on initial recognition and irrevocable (i.e. no subsequent reclassification is allowed).

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Important Note:

The FVOCI-debt classification actually only involves debt instruments and it is a mandatory

Classification (i.e. if the requirements are met, the debt instrument must be classified at FVOCI).

In contrast, the FVOCI-equity classification involves only investments in equity instruments and is purely
an elective classification.

Financial assets at fair value through profit or loss

A financial asset must be measured at fair value through profit or loss unless it is measured at amortized
cost or at fair value through other comprehensive income.

Question: Classification of financial assets

A company makes a large bond issue to the market.

Three companies (A Limited, B Limited and C Limited) each buy identical Rs. 10,000,000 bonds.

Company Business model Classification of bond

A Limited A Limited holds bonds for the purpose of A Limited must measure the
collecting contractual cash flows to maturity bond at amortised cost
B Limited B Limited holds bonds for the purpose of B Limited must measure the
collecting contractual cash flows but sells bond at fair value through OCI
them on the market when prices are favourable
C Limited C Limited buys bonds to trade in them C Limited must measure the
bond at fair value through P&L
Measurement of Financial Assets

Initial Measurement:

Initial measurement of financial assets (and, in fact, all financial instruments) is always at:

 fair value, and may involve the adjustment for transaction costs (added in the case of financial
assets).

Important Note:

Exceptions from using fair value occurs in the event of a trade receivable that does not have a Significant
financing component. Trade receivables that do not have a significant financing Component are always
measured at the relevant transaction price as defined by IFRS 15 Revenue from contracts with
customers.

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Whether or not to adjust a financial asset's fair value for transaction costs depends on the asset
Classification. This is summarized below:

Classification Initial Measurement

Fair value through profit or loss Fair Value *
Fair value through other comprehensive Fair Value + Transaction Costs
income (debt or equity)
Amortized cost Fair Value + Transaction Costs
*in the case of FVPL, any transaction costs would be expensed

Commentary on Transaction Costs:

Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal
of a financial instrument. Examples of transaction costs are:
 fees and commissions paid to agents, advisers, brokers and dealers;
 levies by regulatory agencies and securities exchanges;
 transfer taxes and duties;
 credit assessment fees;
 Registration charges and similar costs.

An incremental cost is one that would not have been incurred if the entity had not acquired, issued or
disposed of financial instrument.

Examples of costs that do not qualify as transaction costs are financing costs, internal administration
costs and holding costs.

For all financial instruments that are not measured at FVTPL the treatment of transaction costs is made
on an instrument-by-instrument basis as follows:

 Fair value of financial asset plus transaction cost

 Fair value of financial liability minus transaction cost

However, trade receivable is an exception to this treatment. Trade receivable are measured in
accordance with IFRS 15.

The following costs expensed as and when they are incurred:

 Transaction cost for financial instruments carried at FVTPL; and
 All other costs related to transaction that do not qualify as transaction costs.

Subsequent Measurement:
Financial Assets classified at amortized cost shall subsequently be measured:
 using effective interest rate method
 tested for impairment
 All gains/losses shall be recognized in P/L

Effective interest rate method is defined as: the method that is used in the calculation of the amortized
cost of A FA (or FL) and the allocation& recognition of the interest revenue (expense) in P/L over the
period.

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Question: Debt Instrument at Amortized Cost
Question: MK Limited has invested in a debt instrument, details of which are as follows:

Face Value=10,000

Premium paid on the investment of the instrument =800

Transaction cost paid on the investment of the instrument =200

Coupon rate of the Instrument =12%

Term of the instrument = 4 years

MK Limited has a policy to classify Investment in debt instruments at Amortized Cost. IRR of the debt
Instrument is 8.9188%

Required:
Prepare the journal entries and relevant extracts from financial statements for ML Limited for the whole
tenure of above investment.

 The entity then measures the asset at its fair value, but recognizes the related fair value adjustment
in other comprehensive income. These cumulative fair value gains or losses recognized in other
comprehensive income will eventually be reclassified to profit or loss, but only upon de-recognition.

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Question: Debt Instrument at FV through OCI
Question: Kaalaam Limited has invested in a debt instrument, details of which are as follow:

Face Value of the Instrument =10,000

Premium paid on the investment of the instrument =1245

Transaction cost paid on the investment of the instrument =325

Coupon rate of the instrument=16%

Term of the instrument =4 years

Kaalaam Limited has a policy to classify Investment in debt instruments at Fair Value through OCI.

IRR of the Instrument =10.95%

Fair Values of the Instrument year wise is as follows:

Yr 1=11,500

Yr 2=11,200

Yr 3=10,700

Required:
Prepare the relevant entries for three years in respect of above investment by Kalaam Limited.

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Question: Equity investment
An equity investment is purchased for Rs. 30,000 plus 1% transaction costs on 1 January 20X6. It is
classified as at fair value through OCI.
At the end of the financial year (31 December) the investment is revalued to its fair value of Rs. 40,000.
On 11 December 20X7 it is sold for Rs. 50,000.
The accounting treatment for this investment shall be as follows:
1 January 20X6 The investment is recorded at Rs. 30,300. This is the cost plus the capitalized transaction
costs.
31 December 20X6 The investment is revalued to its fair value of Rs. 40,000.
The gain of Rs. 9,700 is included in other comprehensive income for the year.
11 December 20X7 The journal entry to record the disposal is as follows:

Dr Cr
Cash 50,000
Investment 40,000
Statement of profit or loss 10,000

Financial Assets carried at fair Value through P/L

It shall subsequently be measured at fair value with any change in fair value to be recognized in profit
and loss account. Dividend income (if any) shall be recognized in P/L.
The classification, and measurement requirements with respect to different classification of financial
assets have been summarized as follows:

Question: Debt Instrument at FV through P/L

Question: Haseena Limited has invested in a debt instrument, details of which are as follows:

Face Value of the instrument =100,000

Premium paid on the investment of the instrument =8000

Transaction cost paid on the investment of the instrument =5800

Coupon rate of the Instrument =12%

Term of the instrument =3 years

Haseena Limited has a policy to classify investment in debt instrument at Fair Value through P/L

IRR of the Instrument =8.848%

Market value of the Instrument at the end of year 1 =107,000

Required:
Prepare the relevant entries for 1st year.

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Question: Summary

Question: Bilal has recently joined your organization. He has prepared a summary of classification and
measurement requirements of financial assets which will help him in handling the transactions related
to the financial assets. He has requested you to review the following summary:

Amortized Cost F.V through OCI F.V through P/L

Business Model Hold to Collect and sell Hold to collect Hold to sell
Cash flows Solely payment of No condition No condition
principal and interest
Categories Debt and equity Debt Securities Equity Securities
securities
Initial Measurement Fair value plus Fair Value Fair value plus
transaction cost transaction cost
Subsequent Amortized Cost Fair Value Fair Value
measurement

Required:

Prepare the corrected summary in the light of IFRSs.

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Question: RASHID INDUSTRIES LIMITED
On 15 October 2016, Rashid Industries Limited (RIL) made the following investments:

Name of Investees Name of Investees Percentage of *Cost of investment

shareholding acquired (Rs. in million)
Karim Limited (KL) 155,000 4% 20
Bashir Limited (BL) 135,000 2% 65

* including transaction cost

Investment in KL was irrevocably elected at initial recognition as measured at fair value through OCI
Investments in BL was designated as measured at fair value through profit or loss.

On 31 December 2016, the market price of shares of KL and BL as on 31 December 2016 was Rs. 80 and
Rs. 600 respectively.

RIL’s broker normally charges transaction costs of 0.2%.

Required:
Explain the accounting treatment of above transactions in accordance with International Financial
Reporting Standards.

Question:
Explain (using calculations as appropriate) how the following financial instruments should be dealt with
in the financial statements.

(i) An entity, Firth issues three debt instruments, all with a nominal value of $100,000 redeemable in
two years. The effective interest rate for all three instruments is 10%.

 The first is issued at par, has a coupon rate of 0% and is redeemable at a premium of $21,000.
 The second is redeemable at par, has a coupon rate of 0% and is issued at a discount of $17,355.
 The third has a coupon rate of 2%, is issued at a discount of $5,000 and is redeemable at a premium
of $10,750. (5 marks)

(ii) An entity, MacDonald buys an equity instrument for trading purposes at a cost of $25 million and
incurred transactions costs of a further $1 million. At the first reporting date the asset had a fair value of
$75 million. Shortly after the year end the asset is sold for its then market value of $200 million.

(3 marks)

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Question – Tokyo
On 1 January 20X1, Tokyo bought a $100,000 5% bond for $95,000, incurring issue costs of $2,000.
Interest is received in arrears. The bond will be redeemed at a premium of $5,960 over nominal value
on31 December 20X3. The effective rate of interest is 8%.

The fair value of the bond was as follows:

31/12/X1 $110,000

31/12/X2 $104,000

Required:

Explain, with calculations, how the bond will have been accounted for over all relevant years if:

(a) Tokyo's business model is to hold bonds until the redemption date.

(b) Tokyo's business model is to hold bonds until redemption but also to sell them if investments
withhigher returns become available.

(c) Tokyo's business model is to trade bonds in the short-term. Assume that Tokyo sold this bond
forits fair value on 1 January 20X2.

The requirement to recognise a loss allowance on debt instruments held at amortised cost or
fairvalue through other comprehensive income should be ignored.

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Question: Muzammil Limited

Question: Muzammil Limited purchased 5000 shares for Rs.100 each.

Transaction cost 2% (in both buying and selling)

Fair Values at different dates are as follows:

1 Jan 2009 Rs.100

31 Mar 2009 Rs.108

30 June 2009 Rs.111

30 Sept 2009 Rs.110

30 Nov.2009 Rs. 114 (sold on the same date)

Dividend amounting Rs.4/share was announced on 30 June 2009

Required:

Prepare necessary entries assuming Muzammil Limited classifies the shares under:

Fair Value Through P/L

Fair Value Through OCI

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Overview of classification of financial assets

Method Which are instruments?

Amortized cost Loans and receivables that satisfy the amortized cost criteria
Fair value to OCI  Loans and receivables that satisfy the fair value through OCI
criteria
 Equity that has been subject to a declaration
Fair value through profit or loss  Equity
(FVTPL)  Derivatives
 Loans and receivables that fail the amortized cost criteria
 Loans and receivables that satisfy the amortized cost criteria
but are designated into this category on initial recognition

3.3 Classification of financial liabilities

At initial recognition, financial liabilities are classified as subsequently measured at amortized cost with
specific exceptions including:

 derivatives that are liabilities at the reporting date; and

 Financial liabilities that might arise when a financial asset is transferred but this transfer does not
satisfy the derecognition criteria.

Irrevocable designation

A company is allowed to designate a financial liability as measured at fair value through profit or loss.
This designation can only be made if: it eliminates or significantly reduces a measurement or recognition
inconsistency; or

This would allow the company to reflect a documented risk management strategy.

Any such designation is irrevocable.

If a financial liability is measured at fair value any change due to the company’s own credit risk is
recognized in OCI (not P&L)

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Measurement of Financial Liabilities

Initial Measurement of Financial Liabilities

Initial measurement of financial liabilities (and, in fact, all financial instruments) is always at:

Fair value, and may involve an adjustment for transaction costs (deducted in the case of financial
liabilities). Whether or not to adjust a financial liability's fair value for transaction costs depends on the
liability's classification. This is summarized below:

Classification Initial Measurement

Fair value through profit or loss Fair Value *
Amortized cost Fair Value - Transaction Costs
*in the case of FVPL, any transaction costs would be expensed

Subsequent Measurement of Financial Liabilities

Financial Liabilities at amortized cost

They are measured at amortized cost. To be measured at amortized cost means that the subsequent
measurement of a financial liability will involve using the Effective interest rate method.

This method also means that interest on the liability will be recognized in profit or loss over its life.

Financial liabilities at fair value through profit or loss

It shall subsequently be measured at fair value with a change in fair value (the amount of a fair value
adjustment that is attributable to changes in credit risk of that liability (i.e. own *credit risk) must be
presented in other comprehensive income to be charged to P/L

*Credit Risk:

The credit risk referred to is the risk relating specifically to that liability rather than the entity as a whole.
This means that a liability that has been collateralized would be lower than a liability for which no
collateral has been offered.

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Question:
GYPSUM
On 1 July 2018, Gypsum Limited purchased 5,000 debentures issued by Iron Limited at par value of Rs.
100 each. The transaction cost associated with the acquisition of the debentures was Rs. 24,000. The
coupon interest rate is 11% per annum payable annually on 30 June. On 1 July 2018, the effective
interest rate was worked out at 9.5% per annum whereas the market interest rate on similar debentures
was 11% per annum.

As on 30 June 2019, the debentures were quoted on Pakistan Stock Exchange at Rs. 96 each.

Required:

Prepare journal entries for the year ended 30 June 2019 if the investment in debentures is subsequently
measured at:

(a) amortized cost

(b) fair value through profit or loss

Question:
Jannat Limited:
On 1 January 2019, Jannat Limited (JL) issued 1.6 million debentures of Rs. 100 each at a premium of Rs.
10 each. The transaction cost associated with the issuance of these debentures was Rs. 5.5 per
debenture. The coupon interest rate is 16% per annum payable annually on 31 December. Khushi
Limited (KL) purchased 0.32 million of these debentures on 1 January 2019.
On 1 January 2019, the approximate effective interest rates were 15% and 14% per annum for JL and KL
respectively. As on 31 December 2019, the debentures were quoted on Pakistan Stock Exchange at Rs.
112 each.

Debentures are subsequently measured at amortized cost by JL and fair value through profit or loss by
KL.

Required:
Prepare journal entries in the books of JL and KL for the year ended 31 December 2019.

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OBJECTIVE BASED QUESTIONS
01. For a debt investment to be held under amortized cost, it must pass two tests. One of these is the
contractual cash flow characteristics test.

What is the other test which must be passed?

(a) The purchase agreement test

(b) The amortized cost test

(c) The business model test

(d) The fair value test

02. What is the default classification for an equity investment?

(a) Fair value through profit or loss

(b) Fair value through other comprehensive income

(c) Amortized cost

(d) Net proceeds

03. Diamond Limited purchased 10,000 shares on 1 September 2014, making the election to use the
alternative treatment under IFRS 9. The shares cost Rs. 35 each. Transaction costs associated with the
purchase were Rs. 5,000.

At 31 December 2014, the shares are trading at Rs. 45 each.

What is the gain to be recognized on these shares for the year ended 31 December 2014?

(a) Rs. 100,000

(b) Rs. 450,000

(c) Rs. 95,000

(d) Rs. 350,000

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04. Copper Limited has purchased an investment of 15,000 shares on 1 August 2016 at a cost of Rs. 65
each. Copper Limited intend to sell these shares in the short term and are holding them for trading
purposes. Transaction costs on the purchase amounted to Rs. 15,000.

As at the year-end 30 September 2016, these shares are now worth Rs. 77.5 each.

What is the gain on this investment during the year ended 30 September 2016, and where in the
Financial Statements will it be recognized?

(a) Rs. 187,500 in Other Comprehensive Income

(b) Rs. 187,500 in Profit or Loss

(c) Rs. 172,500 in Other Comprehensive Income

(d) Rs. 172,500 in Profit or Loss

05. For which category of financial instruments are transaction costs excluded from the initial value,
and instead expensed to profit or loss?

(a) Financial Liabilities at amortized cost

(b) Financial Assets at fair value through profit or loss

(c) Financial Assets at fair value through other comprehensive income

(d) Financial Assets at amortized cost

06. If a company had incurred transaction costs in issuing debentures, how should these have been
accounted for?

(a) Added to the proceeds of the debentures

(b) Deducted from the proceeds of the debentures

(c) Amortized over the life of the debentures

(d) Charged to finance costs

07. Sodium Limited (SL) purchased a debt instrument which will mature in five years' time. SL intends
to hold the debt instrument to maturity to collect interest payments. How should this debt instrument
be measured in the financial statements of SL?

(a) As a financial liability at fair value through profit or loss

(b) As a financial liability at amortized cost

(c) As a financial asset at fair value through profit or loss

(d) As a financial asset at amortized cost

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08. A 5% debenture was issued on 1 April 2010 at total face value of Rs. 20 million. Direct costs of the
issue were Rs. 500,000. The debenture will be redeemed on 31 March 2013 at a substantial premium.
The effective interest rate applicable is 10% per annum.

At what amount will the debenture appear in the statement of financial position as at 31 March 2012?

(a) Rs. 21,000,000

(b) Rs. 20,450,000

(c) Rs. 22,100,000

(d) Rs. 21,495,000

09. How does IFRS 9 Financial Instruments require investments in equity instruments to be measured
and accounted for (in the absence of any election at initial recognition)?

(a) Fair value with changes going through profit or loss

(b) Fair value with changes going through other comprehensive income

(c) Amortized cost with changes going through profit or loss

(d) Amortized cost with changes going through other comprehensive income

10. On 1 January 2011 Oxygen Limited purchased a debt instrument for its fair value of Rs. 500,000.

It had a principal amount of Rs. 550,000 and was due to mature in five years. The debt instrument
carries fixed interest of 6% paid annually in arrears and has an effective interest rate of 8%. It is held
at amortized cost. At what amount will the debt instrument be shown in the statement of financial
position of Oxygen Limited as at 31 December 2012?

(a) Rs. 514,560

(b) Rs. 566,000

(c) Rs. 564,560

(d) Rs. 520,800

11. Which of the following are not classified as financial instruments under IAS 32?

(a) Share options

(b) Intangible assets

(c) Trade receivables

(d) Redeemable preference shares

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12. In order to hold a debt instrument at amortized cost, which TWO of the following tests must be
applied?

(a) Fair value test

(b) Contractual cash flow characteristics test

(c) Investment appraisal test

(d) Business model test

13. Nickel Limited is uncertain of how to treat professional fees. For which of the following
investments should professional fees NOT be capitalized as part of initial value of the asset?

(a) Acquisition of a patent

(b) Acquisition of investment property

(c) Acquisition of fair value through other comprehensive income investments

(d) Acquisition of fair value through profit or loss investments

14. Iron Limited has 5% Rs. 30 million redeemable preference shares in issue which will be redeemed in
5 years’ time.

How should the preference share capital and preference dividend be presented in the financial
statements of Iron Limited?

(a) Preference share capital as equity and preference dividend in the statement of changes in equity

(b) Preference share capital as equity and preference dividend in the statement of profit or loss

(c) Preference share capital as a liability and preference dividend in the statement of changes in equity

(d) Preference share capital as a liability and preference dividend in the statement of profit or loss

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15. Mercury Limited purchased 1 million shares in Jupiter Limited, a listed company, for Rs. 40 million on
1 January 2017. By the year end, 31 December 2017, the fair value of a Jupiter Limited’s share had
moved to Rs. 48. If Mercury Limited were to dispose of the shares, broker fees of Rs. 500,000 would be
incurred.

What is the correct treatment for shares at year end?

(a) Hold shares in investments at Rs.47.5 million, with Rs. 7.5 million gain being taken to the statement
of profit or loss

(b) Hold shares in investments at Rs. 48 million, with Rs. 8 million gain being taken to the statement of
profit or loss

(c) Hold shares in investments at Rs. 48 million, with Rs. 8 million gain shown in the statement of
changes in equity

(d) Hold shares in investments at Rs. 48 million, with Rs. 7.5 million gain shown in the statement of
changes in equity

16. Gold Limited’s draft statement of financial position as at 31 March 2018 shows financial assets at
fair value through profit or loss with a carrying amount of Rs. 12.5 million as at 1 April 2017.These
financial assets are held in a fund whose value changes directly in proportion to a specified market
index. At 1 April 2017 the relevant index was 1,200 and at 31 March 2018 it was 1,296. What amount
of gain or loss should be recognized at 31 March 2018 in respect of these assets?

Rs. ___________

17. On 1 January 2018 Silver Limited purchased 40,000 Rs. 10 listed equity shares at a price of Rs. 30 per
share. An irrevocable election was made to recognize the shares at fair value through other
comprehensive income.

Transaction costs were Rs. 30,000. At the year end of 31 December 2018, the shares were trading at Rs.
60 per share.

What amount in respect of these shares will be shown under 'investments in equity instruments' in
the statement of financial position as at 31 December 2018?

Rs. ___________

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18. An entity acquires a 6% Rs. 1,000 Term Finance Certificate (TFC), a financial asset, for Rs. 970 at the
beginning of Year 1. Interest is receivable annually in arrears.

The TFC is redeemable at the end of Year 3 at a premium of 3%. The financial asset is measured at
amortized cost. The effective interest rate of the financial instrument has been calculated at 8.1%.

Calculate the closing statement of financial position figure at the end of Year 2. Work to the nearest
Rupee.

Rs. ___________

19. Wasim Limited issued Rs. 10 million 5% debentures on 1 January 2019, incurring issue costs of
Rs.400, 000. The debentures are redeemable at a premium, giving them an effective interest rate of 8%.

What expense should be recorded in relation to the debentures for the year ended 31 December
2019?

Rs. ___________

20. Platinum Limited issues Rs.100 million 5% debentures on 1 January 2014, incurring issue costs of
Rs.3 million.

These debentures are redeemable at a premium, meaning that the effective rate of interest is 8% per
annum.

What is the finance cost to be shown in the statement of profit or loss for the year ended 31
December 2015?

Rs. ___________ million (rounded to two decimal points)

22 | C A F - 5 Compiled by: Sir Abeel Ahmed