IINVESTMENT

L t 3Lecture 3

Stock right / Warranty/g yInvestment property

STOCK RIGHT

What is a stock rights ?gA stock rights are rights to buy new shares for cash to existing shareholders by specific

i f t dprice on future day.Why issue shares to existing shareholders?Legally a rights issue must be made before a new Legally a rights issue must be made before a new issue to the public. This is because existing shareholders have the “right of first refusal” on h hthe new shares.

One or more rights- stock warrantyg yRealizable Cost of rights < Stock market valueOtherwise,The price at which the new shares are

issued is generally much less than the prevailing market price for the shares.

3 special days to issue stock rights:p y gDeclared dayIssued dayMaturity date

Declared date Issued date

Stocks and Ri hRights

Issued date Maturity datey

Stocks and Ri hRights

FOR EXAMPLE

Company “A” purchased 1000 units of common stocks “B’ p y pcompany by $2 per share.

After 3 month “A” company received 200 stock rights to b 1 h b $2 5 i f t O i ht i d buy 1 share by $2.5 in future. On rights issue day :

- Market value of stock – $2.2Market value of rights $1 0- Market value of rights- $1.0

Market value Proportion Total Unit costMarket value Proportion TotalCost

Unit cost

Stock 2200 91.67 1833.4 1.8334Stock rights 200 8 33 166 6 0 833Stock rights 200 8.33 166.6 0.833Total amount 2400 100 2000

Dt Stock investment 2000Ct Cash 2000

Dt Stock rights investment 166.6Ct Stock investment 166.6

After 2 months they realized 50 rights . They y g ypurchased 50 stocks by $2.5.

Dt Stock investment 125Ct Stock rights investment 41.65Ct Cash 83.35

They sold 30 stock rights by $1.2.y g y $Dt Cash 36

Ct Stock rights investment 24.99Ct Gain of stock rights investment sold 11.01

INVESTMENT PROPERTY

They are land and buildings held as investments, y g ,and not for the consumption in the operation of business

MEASUREMENT AT RECOGNITIONAn investment property shall be measured initially at its cost.Transaction costs shall be included in the initial measurementTransaction costs shall be included in the initial measurement.

For Purchased Property:

Cost includes purchasei d di tlProperty: price and directly

attributable costs

Cost is the cost at the dateFor Self-Constructed Property:

Cost is the cost at the datewhen the development orconstruction is complete

For Finance Leased Asset:

Cost is the lower of the fairvalue of the property andth t l f thAsset: the present value of theminimum lease payments

• An item of property plant and An item of property, plant and equipment should be recognized as an asset and recorded at its costan asset and recorded at its cost

• Cost= Purchase Price + Other acquisition costsacquisition costs

INVESTMENT PROPERTYland held for long term capital appreciationland held for long-term capital appreciation

land held for a currently undetermined f tfuture use

a building owned by the entity and leased g y yout under one or more operating leases.

a building that is vacant but is held to be a bu d g t at s aca t but s e d to beleased out under one or more operating leases.

It the subsequent expenditure only restores or q p ymaintains the future economic benefits to the originally assessed standard, it should be written off as an expense when it is incurred Examples off as an expense when it is incurred. Examples include repairing and maintenance

FOR MEASUREMENT AFTER RECOGNITIONFOR MEASUREMENT AFTER RECOGNITIONENTITY MAY USE

COST MODEL

FAIR VALUE MODELMODEL MODEL

COST MODELAn entity using shall measure ALL of its investment

property in accordance withp p y

IAS 16 Property, Plant & Equipment requirements for that model, orthat model, or

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations for investment propertiesDiscontinued Operations for investment properties that meet the criteria to be classified as held for sale

EXCEPTEXCEPT

Investment property under operating lease shall be i d t th f i lcarried at the fair value

FAIR VALUE MODELAn entity that chooses the fair value model shallmeasure ALL of its investment property at fair valueEXCEPT where the fair value of the investmentEXCEPT where the fair value of the investmentproperty is not reliably determinable on a continuingbasis.

Investment property under operating lease shall berecognised at the fair value

A gain or loss arising from a change in the fair valueof investment property shall be recognised in profit orloss for the period in which it arisesloss for the period in which it arises

the fair value of investment property shall reflectmarket conditions at the balance sheet datemarket conditions at the balance sheet date.