a.            BRS plc is a publicly listed firm with a fiscal year ending 31 December. On 1 January 2018, BRS plc bought shares of HIF plc, which are listed on the London Stock Exchange. The purchase price of the shares was £50,000; directly attributable transaction costs amounted to £2,500. On 31 December 2018, the market price of the shares was £37,500. On 31 December 2019, the market price of the shares was £54,000.

Required:

i.              From the perspective of BRS plc, are the shares financial assets or financial liabilities according to IAS 32 ‘Financial Instruments: Presentation’? Explain your answer.

ii.             Which classification options for the subsequent measurement of the shares does BRS plc have according to IFRS 9 ‘Financial Instruments’? Explain your answer.

iii.            Prepare the journal entry for initial recognition of the shares under each classification option identified in ii). Explain each step.

iv.           Prepare the journal entries relating to the subsequent measurement of the shares in fiscal year 2018 and 2019, assuming that BRS plc classifies the shares as ‘Fair value through profit or loss’ (FVPL). Explain each step.

b.            In addition to the shares, BRS plc bought bonds, which are listed on the London Stock Exchange, on 1 January 2018. The purchase price of the bonds was £100,000; directly attributable transaction costs amounted to £3,000. On 31 December 2018, the market price of the bonds was £90,000 and BRS plc sold the bonds at the prevailing market price.

Required:

i.              From the perspective of BRS plc, are the bonds financial assets or financial liabilities according to IAS 32 ‘Financial Instruments: Presentation’? Explain your answer.

ii.             Which classification options for the subsequent measurement of the bonds does BRS plc have according to IFRS 9 ‘Financial Instruments’? Explain your answer. You do not need to repeat information you have already provided in a).

iii.            Prepare the journal entry for initial recognition of the bonds under each classification option identified in ii). Explain each step.

iv.           Prepare the journal entries relating to the subsequent measurement and sale of the bonds in fiscal year 2018, assuming that BRS plc classifies the bonds as ‘Fair value through profit or loss’ (FVPL). Explain each step.