MODULE : FAC1601
,FAC1601 Exam
Revision Notes
Contains:
Exam Revision Notes with
Calculations, illustrations,
methods & examples
, 1
Study unit 1 & 2
Study unit 1 & 2
Introduction to the preparation of financial statements
FAC1502 = assumed knowledge regarding AFS of a sole trader.
This work has been dealt with in FAC1502 and is assumed knowledge for FAC1601. The
only new item that needs to be shown in the financial statements is financial assets
that are held for trading. This is illustrated later in this lecture.
Disclosing fair value adjustment: Listed investment
When an entity acquires an investment it is recorded initially at fair value (generally
this is the cost). This value however does not remain the same. The share price could
go up (increase in the fair value) or the share price could go down (decrease in the
fair value). Any subsequent change in the fair value of an investment must be
accounted for.
Illustration
Journal entries
Investment in shares:
Dr Investment: Shares in XX Ltd (FP: A) 25 000
Cr Bank (FP: A) 25 000
Dr Investment expenses (PL: Exp) (transaction costs) 1 500
Cr Bank (FP: A) 1 500
Close off investment expenses at financial year-end:
Dr Profit or loss 1 500
Cr Investment expenses (PL: Exp) 1 500
FAC1601
©Edge Business School
, 2
Study unit 1 & 2
Investment is valued at R28 000:
Dr Investment (FP: A) (28 000 – 25 000) 3 000
Cr Fair value adjustment: Listed investment (PL: Inc) 3 000
Closing transfer:
Dr Fair value adjustment: Listed investment (PL: Inc) 3 000
Cr Profit or loss 3 000
OR
Investment is valued at R23 000:
Dr Fair value adjustment: Listed investment (PL: Exp) 2 000
Cr Investment (FP: A) (25 000 – 23 000) 2 000
Closing transfer:
Dr Profit or loss 2 000
Cr Fair value adjustment: Listed investment (PL: Exp) 2 000
FAC1601
©Edge Business School
,FAC1601 Exam
Revision Notes
Contains:
Exam Revision Notes with
Calculations, illustrations,
methods & examples
, 1
Study unit 1 & 2
Study unit 1 & 2
Introduction to the preparation of financial statements
FAC1502 = assumed knowledge regarding AFS of a sole trader.
This work has been dealt with in FAC1502 and is assumed knowledge for FAC1601. The
only new item that needs to be shown in the financial statements is financial assets
that are held for trading. This is illustrated later in this lecture.
Disclosing fair value adjustment: Listed investment
When an entity acquires an investment it is recorded initially at fair value (generally
this is the cost). This value however does not remain the same. The share price could
go up (increase in the fair value) or the share price could go down (decrease in the
fair value). Any subsequent change in the fair value of an investment must be
accounted for.
Illustration
Journal entries
Investment in shares:
Dr Investment: Shares in XX Ltd (FP: A) 25 000
Cr Bank (FP: A) 25 000
Dr Investment expenses (PL: Exp) (transaction costs) 1 500
Cr Bank (FP: A) 1 500
Close off investment expenses at financial year-end:
Dr Profit or loss 1 500
Cr Investment expenses (PL: Exp) 1 500
FAC1601
©Edge Business School
, 2
Study unit 1 & 2
Investment is valued at R28 000:
Dr Investment (FP: A) (28 000 – 25 000) 3 000
Cr Fair value adjustment: Listed investment (PL: Inc) 3 000
Closing transfer:
Dr Fair value adjustment: Listed investment (PL: Inc) 3 000
Cr Profit or loss 3 000
OR
Investment is valued at R23 000:
Dr Fair value adjustment: Listed investment (PL: Exp) 2 000
Cr Investment (FP: A) (25 000 – 23 000) 2 000
Closing transfer:
Dr Profit or loss 2 000
Cr Fair value adjustment: Listed investment (PL: Exp) 2 000
FAC1601
©Edge Business School
