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Help with IAS 39
02-23-2011, 03:16 PM
Post: #1
Help with IAS 39
Dear Sirs,
I am having difficulty in understanding the treatment of a particular matter. This is as follows
If a company held shares in another company(B)and used to classify those shares as available for sale. However, company(B) has become bankrupt. Is it necessary for me to write off the entire loss of value in the shares immediately? If yes to reserves or Profit and loss for the year? In addition, company(B) is still under legal court proceedings. Can i write off the loss over a period of time as I chose or does the standard permit me not to. I cannot find whether or not I am permitted to. Could you tell me which part off the standard refers to this write off.
Your Help will be greatly appreciated on the matter.
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03-06-2011, 10:59 PM
Post: #2
 
Dear Survivant

Your query is incomplete as you did not mention whether the Company (B) is a listed company or not.

As you mentioned in the post that the investment is classified as Available for Sale therefore it can be established that Fair value of the shares can either be known from
- market (in case of listed company) or
- estimated with the help of valuation models generally used by the market participants for the valuation of said shares by considering factors which are less entity specific(other than listed).

If any of the above case applies. The scenario mentioned by you calls for Impairment testing.

The impairment shall be recognised in Profit and loss, by considering the requirements of IAS 39 (Impairment).

The most reasonable method which company (A) can apply to account for the investment in company B is to write down the investment to the expected amount of recovery from the settlement by the court (if any) against equity held.

Provided that no fair value measure neither "Market" nor "Valuation technique" is available or appropriate.

In nut shell your investment should reflect the open market price which can be realise without significant variation from the book value of the same.

Hope this works for you.

Regards

Sharjeel

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by survivant</i>
<br />Dear Sirs,
I am having difficulty in understanding the treatment of a particular matter. This is as follows
If a company held shares in another company(B)and used to classify those shares as available for sale. However, company(B) has become bankrupt. Is it necessary for me to write off the entire loss of value in the shares immediately? If yes to reserves or Profit and loss for the year? In addition, company(B) is still under legal court proceedings. Can i write off the loss over a period of time as I chose or does the standard permit me not to. I cannot find whether or not I am permitted to. Could you tell me which part off the standard refers to this write off.
Your Help will be greatly appreciated on the matter.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
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