Question

Accounting treatment

Marx Company acquired the following shares in the Hong Kong Stock Exchange on 15 October 2017, which it intended to sell in early 2018 to take advantage of the expected changes in the share prices:

*200,000 ordinary shares of Arthur Ltd at $18.00 per share plus transaction costs of $3,500; and

*160,000 ordinary shares of Bessie Ltd at $26.00 per share plus transaction costs $4,800.

At its year end on 31 December 2017, the shares were quoted on the Hong Kong Stock Exchange at the following prices:

*Ordinary share of Arthur Ltd: $15.00 per share; and

*Ordinary shares of Bessie Ltd: $27.00 per share.

Required:

Discuss and demonstrate the appropriate accounting treatment for the financial assets.

Answer 1

The inflation of Marx company is to hold the shares for a shorter period (i.e., less than 12 months). Shares of Bessie Ltd. Since the shares are treated as current investment, the carrying amount of investment is lower of cost or fair value. Carrying amount as on 31^st December, 2017 Note: Normally cost of an investment includes acquisition charges such as brokerage, fees and stamp duties Assumed given transaction costs are such acquisition charges and are included in cost of investment. Marx company