ACC301 Advance Financial Accounting

Seminar 6

Financial Instruments - Classification, Recognition and

Measurement

Accounting of Derivatives and Hedge

1
Conditions under FRS109

Examples of Business Model (BM) test

Example 1
An entity holds quoted bonds to collect their principal and interest but
would sell the investments to fund capital expenditures if the need
arises. The BM is to hold bonds to collect contractual cash flows as
sale is expected to be infrequent.

Example 2
An entity holds bonds to meet its daily liquidity needs. The entity
actively manages the returns on the bonds. The BM is to both hold
bonds to collect contractual cash flows and for sale.

2
Illustration 2: Financial Assets measured at Amortised Cost

(for the first year only)

Can offset

Total
interest
income
= $64,260

3
Illustration 4: Accounting for FVOCI equity securities

• On 1 Jun 2014, Omega purchased 10,000 units of shares in Delta at

$2.80 per share
• The investment is classified as FVOCI
• On 31 Dec 2014, the price of Delta shares rose to $3.50 per share
• On 31 Mar 2015, Omega sold all Delta shares at $3.30 per share
• Omega’s FY end is 31 Dec.

Prepare journal entries to record the purchase and sale

transactions for both FY 2014 and 2015.