內(nèi)容文本參考msc fa1lecture

1、1MN50318Financial Accounting 1 Lecture 6David BenceIAS39 Measurement All financial instruments (including derivatives) are initially recognised on the statement of position at fair value (sometimes zero!)Transaction costs can be included in the value of the asset or liability unless the asset or lia

2、bility is held for trading.2IAS39 Measurement All financial assets and liabilities that are held for trading are remeasured at each statement of position date at fair valueFinancial assets and liabilities held to maturity (e.g. fixed interest bonds) can be held at amortised cost Gains and losses on

3、derivatives go to the e statement, or through reserves if the gain or loss relates to an effective hedge. 3IAS39 Asset Measurement Category of Financial Assets (not held for hedging)Subsequent Remeasurement MethodTreatment of any gains or losses following remeasurementFinancial assets held for tradi

4、ng. Covers assets held for short-term trading e.g. speculation using derivatives. Fair ValueGain or loss shown in Statement of eLoans and Receivables. Non derivatives e.g. direct lending Amortised cost, using the effective interest rate (EIR)No gain or loss possible as cost has been usedHeld-to-Matu

5、rity Investments. Non derivatives e.g. bonds heldAmortised Cost, using the EIRNo gain or loss possible as cost has been usedAvailable for Sale financial Assets. Dumping ground!Fair ValueGain or loss shown in Other Comprehensive e4Reclassification RuseIn RBS third quarter 2007 results assets were mov

6、ed from the fair value through profit and loss category to the available for sale category, on the grounds that they were no longer actively traded. The assets fair value had declined and were written down by 1,344 million. This loss was shown in reserves. Headline profits were boosted by 1,344 mill

7、ion by this reclassification. The main story of the RBS 2007 accounts was how operating profits were up from 6,497 million to 7, 712 million! In October 2008 the UK Government injected 37 billion and UK citizens now own 84% of RBS. Shares were 7 each in February 2007 and fell to 12p in January 2009.

8、 In 2010 the RBS board threatened to resign unless they got their bonuses!5Student ActivityOn 1.1.X3 H plc buys some zero coupon corporate debt as a short-term speculative investment. It buys 500 bonds and pays 500 per bond, paying an additional 3% broker commission.On 31.12.X3, Hs SOFP date, the bo

9、nds are trading at 600 each. How should H account for this investment?6AnswerThe bonds are held for trading and are designated as FVTPL. Thus commission is expensed (DR expenses 7,500 CR Bank 7,500 being 3% of 500*500)They are initially measured at cost:DR financial asset 250,000CR Bank 250,000On 31

10、.12.X3 the bonds are marked to market in the SOFP and shown under financial assets at 300,000The gain is shown in the e statement:DR Financial asset 50,000CR e 50,000Being gain on bond7IAS39 Liability Measurement Category of Financial Liability (not held for hedging)Subsequent Remeasurement MethodTr

11、eatment of any gains or losses following remeasurementFinancial Liabilities held for trading e.g. derivatives not held for hedging. Fair ValueGain or loss shown in Statement of eAll other financial liabilities e.g. loans Amortised cost, using the effective interest rate (EIR)No gain or loss possible

12、 as cost has been used8Student ActivityOn 1.1.X3 J Bank plc writes a put option allowing the buyer of the put to sell 1m BP shares to J for 5 each anytime between April and June 20X3. J received 25,000 as premium.On 1.1.X3 BP shares are trading at 5.50 eachOn 31.3.X3 (SOFP date) BP shares are tradin

13、g at 4.50 each.RequirementsOn 1.1.X3, does J think that BP price will fall or rise?On 31.3.X3 are the options in the money or out of the money?How should J account for this transaction?9AnswerJ thinks the price will not fall below 5 and hopes to keep the premiumThe options are in the money and likel

14、y to be exercised.The premium e can be credited to e:DR Bank 25,000 CR e 25,000J are likely to have to buy 1m shares at 5 each when the value is 4.50 making a loss of 1m*50p = 500,000There is an unrealised holding loss that is recognised in e under IAS39 (even though it may reverse) DR e 500,000The

15、SOFP needs to include a financial liability CR Financial Liability 500,00010Hedge Accounting IAS39 requires hedge accounting where there is a designated hedging relationship between a hedging instrument and a hedged item. It is prohibited otherwise. Hedging with derivatives is designed to remove ris

16、k for short periods of timeFor example, if you are worried that your share portfolio will fall in value you can sell index futures (instead of your real portfolio) and temporarily keep your investments at a fixed value11Hedge Accounting Fair Value Hedge Fair Value hedge aims to reduce the risk of ch

17、anges in fair value of a recognised asset or liability. EG an oil company with oil reserves can protect itself against future falls in prices by selling forward. In this case assets are held at fair value and this matches the corresponding forward contract also held at fair value losses on one will

18、offset the other. All differences go through e under IAS39 and IFRS9 probably netting off around zero.12Hedge Accounting Cash Flow Hedge Cash flow hedge aims to remove exposure to variability in cash flows. The company is hedging against an asset or liability that is currently unrecognised (!). For

19、example, EADS sell dollars forward by several years. They know they will sell airplanes in the future in dollars and want to reduce their exchange rate risk.Gains and losses on effective cash flow hedges can go through reserves (shown in other comprehensive e) and recycled through profit and loss wh

20、en realised.13Student ActivityX plc produces copper and trades in commodities. It has inventories of copper which it will sell in 6 months time. It is concerned that prices will fall so buys a put option.Y plc trades in commodities. It believes that the price of copper will fall so buys a put option

21、.Z plc produces copper and trades in commodities. It expects to sell a large amount of copper in six months time. Concerned that prices will fall, it buys a put option. It has no copper inventories at the moment.RequirementWhich company has a cash flow hedge, a speculative contract and a fair value

22、hedge?14Hedge Accounting effectiveness Any ineffective hedging needs to go to the e statement. A hedge is effective if the changes in the value of the hedged item are almost fully offset by the changes in the hedged instrument, within a range of 80% to 125%. If outside the range, hedge accounting is

23、 not allowed and gains or losses on the derivative go to profit and loss.15Effectiveness Example Say a UK company thinks that it will receive $100m in revenue in 6 months time. It is worried that the dollar will weaken so enters into a three month futures contract committing the company to selling $

24、100m in six months at 1:$1.At the SOFP date the spot rate is 1:$1.03 and the future rate is 1:$1.02Change in underlying = 2.91m = 148% FAILChange in derivative 1.96mHedge accounting is not allowed. Gain of 1.96m included in e statement. DR financial Asset 1.96m CR e 1.96mIf, after 6 months 1:1.02, t

25、he real dollars are sold at $1.02 or 98.04m DR Bank CR Revenue and the future would be closed out DR Bank 1.96m CR financial asset 1.96m. 16Hedging Problems Firms may not be able to predict the exact timing of future cash flows e.g. when a customer will payFirms may not be able to predict the exact

26、amount of future cash flows e.g. how much will be paidSpot and futures prices might diverge (you are supposed to include the time value of money in IAS39 but I havent in my examples)Firms may say they are hedging when they are speculating17Macro Hedging IAS39 designed for specific hedges e.g. matchi

27、ng a specific transaction or balance with a specific derivative contractMany firms take a general view and macro hedge. For example, firms may take a view on a whole currency and try to protect themselves. For example, A UK firm with EU imports might think that the Euro will decline in value in 2014

28、 and buy some Euros forward now.Macro hedging not allowed under IAS39 but EU did not sign up for this section! IFRS9 will allow some macro hedging still being discussed18FRS9 replacement of IAS39FRS9 replaces some aspects of IAS39. Some IAS39 rules appear to have been relaxed following the credit cr

29、unch of 2007-2009 when accountants were blamed for precipitating the crash with their mark to market rules FRS9 comes into force on 1.1.15 but earlier adoption is allowed.It is a work in progress and only the first phase classification and measurement has been issued. Phase two concerns impairment a

30、nd phase three relates to hedge accounting.Issuing an plete standard is very unusual!19FRS9 Changes the logic to a business model test and a cash flow characteristics test.If a financial instrument is held to realise changes in fair value then changes in value should go through profit and loss. Same

31、 as IAS39 held for trading category.If a financial instrument is held for cash flows then cost and the effective interest rate can be used. Changes in value are ignored. Same as IAS39 held to maturity category.20FRS9 All financial assets are measured either at amortised cost or fair valueTWO EXAMPLE

32、SIf a firm speculates on foreign currency then the financial instruments are held to realise changes in value. They should be shown in the SFP at fair value with changes in value going through profit and lossIf a firm gives mortgages to customers and holds them to receive interest and capital repaym

33、ents then they should be held at cost in the SFP with the effective interest rate going through profit and loss. 21FRS9 Loopholes? Even though there are only two categories instead of four in IAS39, firms are allowed to move between categories.On initial measurement, firms can choose cost or fair value regardless of the FRS9 business model and cash flow testsIf the business model changes then firms can switch. For example, if a mortgage firm stopped sellin