Initial measurement and transaction costs

Learning objectives

• Calculate the initial carrying amount of a financial asset or financial liability: fair value plus (asset) or minus (liability) transaction costs, except for instruments at fair value through profit or loss.L1, L2
• Record the journal entries for initial measurement at fair value and transaction costs and measure their effect on the financial position, profit or loss and other comprehensive income.L1, L2

Normative references

• IFRS 9 §5.1.1Initial measurement: at fair value, adjusted, for financial assets or financial liabilities not at FVTPL, by transaction costs directly attributable to the acquisition or issue (added for an asset, deducted for a liability); trade receivables within para. 5.1.3 are an exception.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• Omega SA acquires bonds that it will subsequently measure at amortised cost (case assumption). The fair value at acquisition is {fair_value}; Omega also pays {transaction_costs} of brokerage fees directly attributable to the acquisition. Calculate the initial carrying amount of the bonds.L1
• Pi SA buys listed shares, held for trading and measured at fair value through profit or loss (case assumption). The fair value at acquisition is {fair_value}; Pi pays {brokerage_fees} of directly attributable brokerage fees. Case convention: brokerage fees on an asset measured at FVTPL are expensed in the period. Record the acquisition entry.L2
• Rhô SA issues a bond that it will subsequently measure at amortised cost. The fair value at issue is 5,000,000; the nominal amount to be repaid is 5,150,000; Rhô pays 60,000 of directly attributable issue costs. What is the initial carrying amount of the liability?L2