Example of Initial measurement of financial asset

Example of Initial measurement of financial asset

The financial asset is measured at fair value i.e. this is the normally the cost of financial assets.

Example of Initial Measurement

10,000 Shares @ 10	$ 100,000
Fair value of share	$ 12
Transaction Cost	$ 20,000

How the financial asset will be recognized in the books of accounts

Solution

Rules for financial initial recognition

1.      Financial asset to be initial recognized at Fair value

2.      Transaction cost is form part of financial asset ( added to fair value of financial asset)

Fair Value of Financial assets	$ 120,000
Transaction costs	$  20,000
Fair value of Financial assets	$ 140,000

Journal entry for financial assets Initial Recognition

Date	Particulars	Dr.	Cr.
	Financial assets	$ 140,000
	Cash		$ 140,000

The financial is debited and the cash paid is credited