Transaction not representing the fair value

A financial asset or financial liability should be measured at fair value on initial recognition. What if the transaction does not represent the fair value of the financial asset or financial liability?

If at initial recognition the transaction value is different from the fair value, then the difference between the fair value at initial recognition and the transaction price is recognised as gain or loss immediately. This is so in the case where the transaction occurs in an active market for an identical asset or liability or based on valuation technique derived from observable market data.

In all other cases, at the fair value adjusted to defer the difference between the fair value on initial recognition and the transaction price. Such deferred difference is recognised as a gain or loss to the extent that it arises from a change in a factor that market participants usually take into account while pricing the asset or liability. For an asset that is subsequently measured at amortised cost, the asset is recognised initially at this fair value on the traded date when an entity uses settlement date accounting for such assets.

Consequence of not de-recognising an asset after the sale

Consequence of not de-recognising an asset after the sale What is the consequence of not de-recognising an asset even after the sale of such asset? When an entity continues to recognise an asset to the extent of its continuing involvement, the entity also recognises an associated liability. The transferred asset and the …
Read More

Treatment of transaction costs

Treatment of transaction costs How are the transaction costs treated? Transaction costs incurred while acquiring a financial asset or incurring a financial liability is treated differently depending upon the classification of such financial asset or financial liability. Transaction costs include fees and commission paid to agents (including employees acting as selling agents), advisers, …
Read More

What is the concept of effective interest method?

What is the concept of effective interest method? Explain the concept of effective interest method? Effective interest method is a new concept that is introduced through the Ind AS standards. Effective interest rate is relevant not merely for financial instruments, but as a concept running through the entire gamut of the Accounting …
Read More

Contractual cash flows & effective interest rate

Contractual cash flows & effective interest rate When contractual cash flows are modified to change in the terms of contract, does the effective interest rate change? When the contractual cash flows of a financial asset are renegotiated or otherwise modified and the renegotiation or modification does not result in the de-recognition …
Read More

Derecognition of a financial asset

Derecognition of a financial asset When should a financial asset be derecognised? An entity shall derecognise financial assets when and only when the contractual rights to the cash flows from the financial assets expire or it transfers the financial asset which eventually qualifies for derecognition as per the standard. An entity transfers a …
Read More

Subscribe to our News Letter

Get periodical updates from us

Subscribe to our News Letter

I hope you enjoy reading this blog