ACCA FR · Chapter 7 · Question 5 of 10
Bittern Co bought 100,000 shares in a listed company for $3.00 each, paying transaction costs of $6,000. The shares are held for trading. At the year end their market price was $3.40. What is the net effect on profit or loss for the year?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Gain of $34,000
Explanation
Investments held for trading are measured at FVTPL. They are first recognised at fair value (100,000 x $3.00 = $300,000), and transaction costs of $6,000 are expensed immediately. Fair value gain = 100,000 x ($3.40 - $3.00) = $40,000. Net effect = $40,000 - $6,000 = $34,000.
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