Financial Instruments

[nichoalscfm]

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

[Dave A]

Probably a revaluation reserve and deferred income tax account, if I followed you correctly.

Why are you so keen on revaluing the financial instruments?

[nichoalscfm]

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

[Dave A]

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.

[geraldenek]

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 Group’s 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 Group’s 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.

[Dave A]

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"?

[geraldenek]

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