IFRS 13 · Case studies (Step 3 of 5)
Case study
Banque Altavia (fictitious entity) acquired three instruments in January 20X5 and runs two derivatives desks. For the 31 December 20X5 closing, the finance department asks you to deal with the difference between price and fair value for each instrument and to check whether the desks may measure their positions on a net basis.
Your assignment
Explain why price and fair value differ; compute the initial difference of X and Y and the calibration adjustment of W; retain and justify the treatment of each case; assess the eligibility of desks A and B for the portfolio exception; compute the net position of desk A and its fair value; record X and Y and present the effect; conclude.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Autonomous professional situation
As on a real engagement: no method, no checklist and no hints. You identify the issues yourself, organise the work and defend your conclusion.
7 documents: open each one to read it.
Document 1Contract
Instrument X: structured note acquired on 2 January 20X5 from an independent market maker, at a transaction price of 1,000,000 EUR. The present value technique, applied at that date on exclusively observable inputs (yield curve, quoted spreads), gives a fair value of 1,060,000 EUR.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Transaction price of instrument X | €1,000,000.00 | |
| Fair value of X by the technique (observable inputs only) | €1,060,000.00 | |
| Transaction price of instrument Y | €2,000,000.00 | |
| Fair value of Y by the technique (significant unobservable inputs) | €2,150,000.00 | |
| Transaction price of instrument W (equal to fair value) | €1,200,000.00 | |
| Initial result of the technique for W | €1,250,000.00 | |
| Desk A's long positions | €48,000,000.00 | |
| Desk A's short positions | €31,000,000.00 | |
| Broker quotation for the open net position | €136,000.00 | |
| Spread adjustment on the net position | €9,000.00 | |
| IT budget 20X6 | €2,400,000.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Instrument X
Instrument Y
Treatment under the applicable standard (case data)
Instrument W
Desk A
Desk B
IT budget
Organise your work freely: deal with each point, then argue your conclusion.
Task 1Analysis
Why can the transaction price differ from fair value at initial recognition?
Task 2Calculation
Compute the initial difference of X and Y.
Part 1 · Calculation
Compute the initial difference of X and Y.
Result: Initial difference of Y
Task 3Calculation
Compute the calibration adjustment of W.
Part 1 · Calculation
Compute the calibration adjustment of W.
Task 4Professional judgement
Which treatment should be used for the difference of X, Y and W? Justify.
Task 5Professional judgement
Are desks A and B eligible for the portfolio exception? Justify.
Task 6Calculation
Compute desk A's net position.
Part 1 · Calculation
Compute desk A's net position.
Task 7Calculation
Compute the fair value of the net position.
Part 1 · Calculation
Compute the fair value of the net position.
Task 8Journal entries
Record the acquisitions of X and Y.
Part 1 · Journal entry · Journal entries
Entry 1 of 2
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Line 3
Part 2 · Journal entry · Journal entries
Entry 2 of 2
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Line 3
Task 9Effects on the financial statements
What is their effect on the financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 10Conclusion
Write the conclusion.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 13).
Document this file
These working papers use the data and results of this case.
Normative references