Subsequent Measurement of available for sales financial assets

Subsequent Measurement of available for sales financial assets

 The financial asset available for sales is initial measurement at fair value and subsequently measured at fair value at each reporting date.

Example of Subsequent Measurement available for sale

Share purchased  50,000 @ 20	$ 1,000,000
Transaction Cost	$ 100,000
Share is to be held for long term
31 December share value is 25
Profit for the Year	$500,000

How the financial asset will be measured at reporting date?

1.      Initial Measurement

Financial asset are initial measured at fair value which is normally cost of investment and the transaction cost is added to the value of asset.

Date	Particulars	Dr.	Cr.
	Financial assets	1,100,000
	Cash		1,100,000

2.      Subsequent Measurement

Financial asset are subsequent measured at fair value at reporting date and gain or loss is charged to income statement.

Fair value at start	Fair value at reporting date	Increase in value
1,100,000	1,250,000	150,000

Date	Particulars	Dr.	Cr.
31.Dec.2012	Financial assets	150,000
31.Dec.2012	Cash		150,000

3.      Financial Statement

In balance sheet the investment is shown at fair value and gain or loss is charged to the income statement for the year.

Income Statement

Profit before investment income	$ 500,000
Investment Gain	$ 150,000
Profit after investment Gain	$ 650,000

Statement of Financial Position (Balance sheet)

$1,250,000