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Thread: Financial Instruments

  1. #1
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    Financial Instruments

    Hi All

    My question is a two part one:

    1.) Are Financial Instruments shown at cost or Market Value on AFS. Our auditors indicate that these should be shown at cost, then a note can be added indicating the Current Market value. (SME)
    My director and I are a quite uncomfortable with this, due to current economic climate.

    Which is correct in compliance with IFRS ? (9/39)

    2.) At year end we have revalued the Financial Instruments to Market Value indicated on the Statements we receive from the FSP.

    A column is displayed on these statements which indicate the Appreciation /(Depreciation) of these Financial Instruments. This "revaluation" we have debited / (credited) to the respective Financial Instrument and taken the balancing figure to Non-Distributable reserve (b/s).

    The problem now arises that even though the "revaluation" figure agrees to FSP statements,the Financial Instruments that were traded on in the year, do not balance back to the FSP Statements received. ???

    Any advice as to where the difference should go?

    Income Statement ? Financial Instruments (Market to Market Profit / (loss)


    Thanks

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    Site Caretaker Dave A's Avatar
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    Probably a revaluation reserve and deferred income tax account, if I followed you correctly.

    Why are you so keen on revaluing the financial instruments?
    The trouble with opportunity is it normally comes dressed up as work.

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    Quote Originally Posted by Dave A View Post
    Probably a revaluation reserve and deferred income tax account, if I followed you correctly.

    Why are you so keen on revaluing the financial instruments?


    Hi Dave

    The MD of the business would like the Value to be equal to that of the Current Market Value as at 31-10-2011.

    Previously we had these at cost per Auditors, as we are an SME.

    The logic is that if one were to go to a Banking intuition and request a loan for a development, etcetera.

    The Banking Intuition would require the Current Value of the FI's and not the purchase ??

    One contacting the FSP portfolio manager he suggest that FI's values (after revaluation) that do not reconcile to the Statement should be disclosed as an unrealised Capital Gain / (loss).


    "If past history was all there was to the game, the richest people would be librarians."
    Warren Buffett

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by nichoalscfm View Post
    The Banking Intuition would require the Current Value of the FI's and not the purchase ??
    Typically they'll finance to 50% of the current value

    But you don't need to revalue for that - a note in the financials will probably suffice as you'll probably have to prove the value at time of application anyway if you're planning to use the instruments as security.
    The trouble with opportunity is it normally comes dressed up as work.

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    Silver Member geraldenek's Avatar
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    Hello nichoalscfm

    Firstly IRFS9 is to replace IAS39 as there has been a lot of complaints with regards to the complexity of understanding IAS39.

    IAS39 is full IFRS thus you will not be dealing with this.

    IFRS for SME's states with regards to financial instruments ( sorry going to give assets and liablities as i'm not sure about which one you are refering)

    Financial assets

    Trade and other receivables and cash and cash equivalents
    These financial assets are recognised initially at the transaction price.
    Subsequently they are measured at amortised cost using the effective interest
    method, less provision for impairment. Sales are made on normal credit
    terms and trade receivables do not bear interest.
    Where there is objective evidence that the carrying amounts of receivables
    are not recoverable, an impairment loss is recognised in profit or loss.

    Other short-term financial assets

    Other short-term financial assets comprise investments in equity securities.
    They are recognised initially at transaction price. After initial recognition,
    investments in equities that are publicly traded or for which the fair value
    can be measured reliably, are measured at fair value with changes in fair
    value recognised in profit or loss. Other equity investments are measured at
    cost less any impairment.

    Financial liabilities

    The Groupís financial liabilities include borrowings and trade and other
    payables. Financial liabilities are recognised initially at transaction price.
    After initial recognition they are measured at amortised cost using the
    effective interest method. Trade payables are on normal credit terms and do
    not bear interest.

    Derivative financial instruments

    The Groupís derivative financial instruments comprise forward exchange
    contracts, which are measured initially at fair value. After initial recognition
    they are measured at fair value with changes in fair value recognised in profit
    or loss. Fair values are estimated using discounted cash flow analysis based
    on market forward exchange rates and interest rates at the reporting date.


    With regards to your second question for full IFRS:

    you have different categories to value it at (depending ont he purpose of the instrument) if it is an asset:
    1. Fair value through profit or loss
    2. Held to maturity
    3. Loans and receivables
    4. Available for sale

    each one has a different scenario, so you will have to get back to me on the category and if it is an assset please.
    Geraldene Kapp
    Professional Tax Help
    www.mytaxhelp.co.za

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by geraldenek View Post
    Other short-term financial assets comprise investments in equity securities.
    They are recognised initially at transaction price. After initial recognition,
    investments in equities that are publicly traded or for which the fair value
    can be measured reliably, are measured at fair value with changes in fair
    value recognised in profit or loss.
    Whatever happened to the principle of "there's no profit until there's a sale"?
    The trouble with opportunity is it normally comes dressed up as work.

  9. #7
    Silver Member geraldenek's Avatar
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    Quote Originally Posted by Dave A View Post
    Whatever happened to the principle of "there's no profit until there's a sale"?
    this is only for accounting purposes for tax purposes the fair value profit/loss is counted back so at least you don't get taxed on it
    Geraldene Kapp
    Professional Tax Help
    www.mytaxhelp.co.za

  10. Thank given for this post:

    Dave A (11-Nov-11), nichoalscfm (11-Nov-11)

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