ipsas 29—financial instruments: recognition and measurement - IFAC

FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT
entity X almost obsolete. This resulted in a permanent decline in the value of
listed entity X. The value of the impairment loss as at December 31, 20X9 is
CU700,000. Entity A has a policy of accounting for investments in shares as an
available-for-sale financial asset. Assume that the arrangement is a contractual
arrangement, no present obligations arise from the donation and that the entity’s
reporting period ends on December 31, 20X8.
Analysis
IE48. As entity A received the shares as a donation, it uses IPSAS 23 to initially
recognize the shares acquired and the related non-exchange revenue. However,
because entity A has acquired a financial asset, it considers the initial
measurement requirements of IPSAS 23 and IPSAS 29.
IE49. IPSAS 23 prescribes that assets acquired as part of a non-exchange revenue
transaction are initially measured at fair value, while IPSAS 29 prescribes that
financial assets are initially measured at fair value and, depending on their
classification, transaction costs may or may not be included. As the entity has a
policy of accounting for investments in shares as available-for-sale financial
assets, the transaction costs of CU10,000 are added to the value of the shares of
CU1,000,000 on initial measurement.
IE50. The subsequent measurement and derecognition of the shares is addressed in
IPSAS 29. The entity classifies investments in shares as available-for-sale
financial assets which means that the shares are measured at a fair value with
any subsequent changes in fair value recognized in net assets/equity.
Impairment losses are however recognized in surplus or deficit in the period in
which they occur.
The journal entries at initial acquisition and at the reporting dates are as follows:
1. Acquisition of shares through donation
Dr Available-for-sale financial asset
(investment in entity X)
1,010,000
Cr Non-exchange revenue 1,000,000
Cr Bank (Transfer costs paid) 10,000
2. Subsequent measurement at December 31, 20X8
Dr Net assets/equity (fair value adjustment
of investment)
Cr Available-for-sale financial asset
(investment in entity X)
1285
110,000
110,000
3. Subsequent measurement at December 31, 20X9
Dr Impairment loss (surplus or deficit) 700,000
Cr Available-for-sale financial asset 700,000
IPSAS 29 ILLUSTRATIVE EXAMPLES
PUBLIC SECTOR