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Financialfinancial is‘anycontractthatgivesrisefinancialafinancialassetofoneentityandafinancialliabilityorequityinstrumentofanotherentity’(IAS32,para11)AfinancialassetisanyassetthatanequityinstrumentofanotheracontractualrighttoreceivecashorfinancialassetfromanotheracontractualrighttoexchangefinancialinstrumentswithanotherentityunderconditionsthatarepotentiallyfavorabletotheentityAfinancialliabilityisanyliabilitythatiscontractualobligationtodelivercashoranotherassettoanothercontractualobligationtoexchangefinancialinstrumentswithanotherentityunderconditionsthatarepotentiallyanon-derivativecontractforwhichtheentityisormaybeobligedtodeliveravariablenumberoftheentity'sownequityinstruments.(IAS32,para11)Anequityinstrumentis‘anycontractthatevidencesaresidualinterestintheassetsofanentityafterdeductingallofitsliabilities'(IAS33,para11)IAS32FinancialInstruments:PresentationdealswiththeclassificationoffinancialinstrumentsandtheirfinancialstatementpresentationIFRS7FinancialInstruments:DiscoursesdealswiththedisclosureoffinancialinstrumentsinfinancialstatementsIFRS9FinancialisconcernedIFRS9FinancialandsubsequentmeasurementoffinancialIAS32clarifiesthataninstrumentisonlyanequityinstrumentifinthedefinitionofafinancialliabilityarenotIAS32doesnotclassifyafinancialinstrumentasequityorfinancialliabilityonthebasisofitslegalformbutonthesubstanceofthetransaction.4millionpreferencesharesfor$2.50each.Theyarenotmandatorilyredeemable.Adividendispayableif,andonlyif,dividendsarepaidonordinaryshares.AfinancialliabilityexistsifthereisanobligationtodelivercashanotherfinancialThereisnoobligationforXtorepaytheinstrument.DividendsonlypayableiftheyarealsopaidonordinaryThereisnoobligationtopaydividendsonordinarysharessothereisnoobligationtopaydividendsonthesepreferenceshares.Theinstrumentisnotafinancialliability.Theproceedsfromthepreferenceshareissueshouldthereforebeclassifiedasequityinthestatementoffinancialposition.Xissued1millionpreferencesharesfor$3each.Nodividendsarepayable.Xwillredeemthepreferencesharesinthreeyears’timebyissuingordinarysharesworth$3million.TheexactnumberofordinarysharesissuablewillbebasedontheirfairvalueontheXwillredeemthepreferencesharewithavariablenumberofordinarysharesworth$3million.Therefore,thepreferenceshareshouldbeclassifiedasliabilityinthestatementfinancialposition.2millionpreferencesharesfor$2.80each.Nodividendsarepayable.Thepreferenceshareswillberedeemedintwoyears’timebyissuing3millionordinarysharesXwillredeemthepreferencesharewithafixednumberofordinaryshares.Therefore,thepreferenceshareshouldbeclassifiedasequityinthestatementfinancialposition.DividendspaidinrespectofpreferencesharesclassifiedasaliabilitywillbechargedasafinanceexpensethroughprofitorlossDividendspaidonsharesclassifiedasequitywillreportedinthestatementofchangesinIAS32statesthatafinancialassetandafinancialliabilitymayonlybeoffsetinverylimitedcircumstances.Thenetamountmayonlybereportedwhentheentityhasalegally ablerighttosetofftheintendseithertosettleonanetbasis,ortorealisetheandsettletheliabilitysimultaneously"(IAS32,paraInitialrecognitionoffinancialAtinitialrecognition,financialliabilitiesaremeasuredatfairIfthefinancialliabilitywillbeheldatfairvaluethroughtransactioncostsshouldbetransactioncostsshouldbe

tothestatementIfthefinancialliabilitywillnotbeheldatfairvaluethroughprofitorloss,transactioncostsshouldbedeductedfromitscarryingamountSubsequentmeasurementoffinancialThesubsequenttreatmentofafinancialliabilityisthattheycanbemeasuredateither:amortisedfairvaluethroughprofitorTheinitialcarryingamountofafinancialliabilitymeasuredatamortisedcostisitsfairvaluelessanytransactioncosts(the‘netproceeds’fromissue).Afinancecostischargedontheliabilityusingtheeffectiverateinterest.ThiswillincreasethecarryingamountoftheDrFinanceCrTheliabilityisreducedbyanycashpaymentsmadeduringtheDrCrOn1January20X1Xissuedaloannotewitha$50,000nominalvalue.Itwasissuedatadiscountof16%ofnominalvalue.Thecostsofissuewere$2,000.Interestof5%ofthenominalvalueispayableannuallyinarrears.Thebondmustberedeemedon1January20X6(after5years)atapremiumof$4,611.Theeffectiverateofinterestis12%perHowwillthisbereportedinthefinancialstatementsofXtheperiodtoTheliabilitywillbeinitiallyrecognisedatthenetproceedsfaceLess:16%Less:IssueInitialrecognitionofTheliabilityisthenmeasuredatamortisedFinancecost(LiabilityCashClosing12345TO:Profitor To:Statementof

OutofthemoneyandOutofthemoneyaremeasuredatfairvaluethroughprofitorOn1January20X1,Xissuedafinancialliabilityfornominalvalueof$10million.Interestispayableatarateinarrears.Theliabilityisrepayableon31December20X3.Xtradesfinancialliabilitiesintheshort-term.At31December20X1,marketratesofinteresthavetoDiscusstheaccountingtreatmentoftheliabilityatThefinancialliabilityistradedintheshort-termandsoismeasuredatfairvaluethroughorloss.TheliabilitymustberemeasuredtofairvalueatthereportingAssumingthatthefairvalueoftheliabilitycannotbeobservedfromanactivemarket,itcancalculatedbydiscountingthefuturecashflowsatamarketrateof Theinterestpaymentsare$10mx5%=$0.Thefairvalueoftheliabilityattheyear-endis$9.13millionThefollowingadjustmentisrequiredDrLiability($10m-CrProfitor

$$PilotpaperQ1IssueofconvertibleOn1October20X5,Hillissuedaconvertiblebondatparvalueof$20millionandhasrecordeditasaPilotpaperQ1IssueofconvertibleBondholderscaninsteadoptforconversionintheformofafixednumberofshares.Interestonthebondispayableatarateof4%ayearinarrears.Theinterestpaidintheyearhasbeenpresentedinfinancecosts.Theinterestrateonsimilardebtwithoutaconversionoptionis10%.DiscountDiscountrateDiscountrate12Discuss,withsuitablecalculations,howtheconvertiblebondshouldbedealtwithintheconsolidatedfinancialstatementsfortheyearended30September20X6,showinganyadjustmentsrequired.(6marks)Hillhasissuedacompoundinstrumentbecausethebondhascharacteristicsofbothafinancialliability(anobligationtorepaycash)andequity(anobligationtoissueafixednumberofHill’sownIAS32FinancialInstruments:Presentationspecifiesthatmustmustbesplitaliabilitycomponent(theobligationtorepayanequitycomponent(theobligationtoissueafixednumberofThesplitoftheliabilitycomponentandtheequitycomponentatthedateiscalculatedastheliabilitycomponentisthepresentvalueofthecashdiscountedusingthemarketrateonnon-convertibletheequitycomponentisthedifferencebetweenthecashreceivedtheliabilitycomponentattheissueTheinitialcarryingamountoftheliabilityshouldhavebeenmeasuredatmillion,calculatedasCashDiscountPresent30September30SeptemberTheequitycomponentshouldhavebeeninitiallymeasuredat$2·1($20m–TheadjustmentrequiredDrNon-currentCr

Theequitycomponentremainsunchanged.Afterinitialtheliabilityismeasuredatamortisedcost,as1OctoberFinancechargeCash30SeptemberThefinancecostrecordedfortheyearwas$0·8millionandsomustincreasedby$1·0million($1·8m–DrFinanceCrNon-current

Theliabilityhasacarryingamountof$18·9millionasatthe2019/122019/12On1October20X8,theCEOandfinancedirectoreachpaid$2mcashinexchangeforpreferencesharesfromStentCowhichprovidecumulativedividendsof7%perannum.Thesepreferencesharescaneitherbeconvertedintoafixednumberofordinarysharesintwoyears’time,orredeemedatparonthesamedate,atthechoiceoftheholder.(4Thefinancedirectorsuggeststotheaccountantthatthepreferencesharesshouldbeclassifiedasequitybecausetheconversionisintoafixednumberofordinarysharesonafixeddate(‘fixedforfixed’)andconversioniscertain(giventhe(4IAS32definesanequityinstrumentasanycontractwhichevidencesaresidualinterestintheassetsofanentityafterdeductingallofitsliabilities.Anequityinstrumenthasnocontractualobligationtodelivercashoranotherfinancialasset,ortoexchangefinancialassetsorfinancialliabilitiesunderpotentiallyunfavourableconditions.Ifsettledbytheissuer’sownequityinstruments,anequityinstrumenthasnocontractualobligationtodeliveravariablenumber,orissettledonlybyexchangingafixedamountofcashoranotherfinancialassetforafixednumberofitsownequityPreferenceshareswhicharerequiredtobeconvertedintoafixednumberofordinarysharesonafixeddateshouldbeclassifiedasequity(thisisknownasthe‘fixedforfixed’requirementtowhichthefinancedirectorHowever,acriticalfeatureindifferentiatingafinancialliabilityfromanequityinstrumentistheexistenceofacontractualobligationoftheissuereithertodelivercashoranotherfinancialassettotheholder,ortoexchangefinancialassetsorfinancialliabilitieswiththeholder,underconditionswhicharepotentiallyunfavourabletotheissuer.Inthiscase,StentCohasissuedconvertibleredeemableshares–whichmakeslittlecommercialsensefrom ,astheyoffertheholderthebenefitofconversionintoordinarysharesifsharepricesrise,andthesecurityofredemption(atthechoiceoftheholder)ifsharepricesfall.IAS32notesthatthesubstanceofafinancialinstrument,ratherthanitslegalform, ernsitsclassificationintheentity’sstatementoffinancialposition.Apreferencesharewhichprovidesformandatoryredemptionforafixedordeterminableamountatafixedordeterminablefuturedateorgivestheholdertherighttorequiretheissuertoredeemtheinstrumentataparticulardateforafixedordeterminableamountisafinancialliability.Becausethepreferencesharesoffertheholderthechoiceofconversionintoordinarysharesaswellasredemptionintwoyears’time,thetermsofthefinancialinstrumentshouldbeevaluatedtodeterminewhetheritcontainsbothaliabilityandanequitySuchcomponentsareclassifiedsepara yascompoundfinancialinstruments,recognisingsepara ythecomponentsofafinancialinstrumentwhichcreatesbothafinancialliabilityoftheentity(acontractualarrangementtodelivercashoranotherfinancialasset)andanequityinstrument(acalloptiongrantingtheholdertheright,foraspecifiedperiodoftime,toconvertitintoafixednumberofordinarysharesoftheentity).InaccordancewithIFRS9FinancialInstruments,whentheinitialcarryingamountofacompoundfinancialinstrumentisallocatedtoitsequityandliabilitycomponents,theequitycomponentisassignedtheresidualamountafterdeductingfromthefairvalueoftheinstrumentasawholetheamountsepara ydeterminedfortheliabilitycomponent.StentCowouldmeasurethefairvalueoftheconsiderationinrespectoftheliabilitycomponentbasedonthefairvalueofasimilarliabilitywithoutanyassociatedequityconversionoption.Theequitycomponentisassignedtheresidualamount.Gearingwoulddecreaseifthedraftfinancialstatementshadincludedthepreferenceshareswithinequity:thecorrectionwouldincreasenon-currentdebt(thepresentvalueofthefuture44Derivative.Aderivativehasthreeitsvaluechangesinresponsetoanunderlying(e.g.sharepriceorinterestitrequireslittleornoinitialnetitissettledatafutureEg：Forwardcontract,future,ExEx-ForwardOn1November20X1Johnsontookoutaspeculativeforwardcontracttobuycoffeebeansfordeliveryon30April20X2atanagreedpriceof$6,000intendingtosettlenetincash.Duetoasurgeinexpectedsupply,aforwardcontractfordeliveryon30April20X2wouldhavecost$5,000on31December20X1.Discuss,withsuitablecalculations,howtheabovefinancialinstrumentsshouldbeaccountedforinthefinancialstatementsofJohnsonfortheyearended31December20X1.financialIFRS9appliestothosecontractstobuyorsellanon-financialitemthatcanbesettlednetincashoranotherfinancialfinancialThefairvalueofaforwardcontractatinceptionisThefairvalueofthecontractattheyearend$Marketpriceofforwardcontract-yearendfordeliveryon30Johnson'sforwardAfinancialliabilityof$1,000isthereforerecognisedwithcorrespondingchargeof$1,000toprofitorInitialrecognitionoffinancialIFRS9saysthatanentityshouldrecogniseafinancialasset'when,andonlywhen,theentityInitialrecognitionoffinancialIFRS9appliestothosecontractstobuyorsellanon-financiaitemthatcanbesettlednetincashoranotherfinancialinstrument,orbyexchangingfinancialinstrumentsasifthecontractswefinancialinstruments(IFRS9:para.2.4).TheseareconsideredfinancialcontractsHowever,contractsthatwereenteredinto(andcontinuetobeheld)fortheentity'sexpectePurchase,saleorusagerequirementsofnon-financialitemsareoutsidethescopeofIFRS9.Theseareexecutorycontracts.Executorycontractsarecontractsunderwhichneitherpartyhasperformedanyofitsobligationsorbothpartieshavepartiallyperformedtheirobligationstoanequalextent)(IAS37:para.3).Executorycontractsarenotinitiallyrecognisedinthefinancialstatementsunlesstheyareonerous,inwhichcaseaprovisionisGustosoisapubliclimited whichproducesarangeofluxuryItalianfoodproductswhicharesoldtorestaurants,shopsandsupermarkets.WheatGustosopurchasessignificanttiesofwheatforuseinitsbreadandpastaproducts.Thesearehigh-valueproductsonwhichGustosorecordssignificantprofitmargins.Nonetheless,thepriceofwheatisvolatileandso,on1November20X7,Gustosoenteredintoacontractwithartopurchase500,000bushelsofwheatinJune20X8for$5abushel.Thecontractcanbesettlednetincash.Gustosohasenteredintosimilarcontractsinthepastandhasalwaystakendeliveryofthewheat.By31December20X7thepriceofwheathadfallen.Thefinancedirectorrecordedaderivativeliabilityof$0·5milliononthestatementoffinancialpositionandalossof$0·5millioninthestatementofprofitorloss.WheatpricesmayriseagainbeforeJune20X8.Theaccountantisunsureifthecurrentaccountingtreatmentiscorrectbutfeelsfortableapproachingthefinancedirectoragain.IFRS9FinancialInstrumentsappliestocontractstobuyorsellanon-financialitemwhicharesettlednetincash.Suchcontractsareusuallyaccountedforasderivatives.However,contractswhichareforanentity’s‘ownuse’ofanon-financialassetareexemptfromtherequirementsofIFRS9.Thecontractwillqualifyas‘ownuse’becauseGustosoalwaystakesdeliveryofthewheat.ThismeansthatitfallsoutsideIFRS9andsotherecognitionofaderivativeisincorrect.Thecontractisanexecutorycontract.Executorycontractsarenotinitiallyrecognisedinthefinancialstatementsunlesstheyareonerous,inwhichcaseaprovisionisrequired.Thisparticularcontractisunlikelytobeonerousbecausewheatpricesmayriseagain.Moreover,thefinishedgoodswhichthewheatformsapartofwillbesoldataprofit.Assuch,noprovisionisrequired.ThecontractwillthereforeremainunrecogniseduntilGustosotakesdeliveryofthewheat.Thederivativeliabilityshouldbederecognised,meaningprofitswillincreaseby$0·5PilotPilotpaperSubsequentSubsequentacquisitionof20%ofWhenKutchenacquiredthemajority,80%,shareholdinginMach,therewasanoptionontheremaining20%non-controllinginterest(NCI),whichcouldbeexercisedatanytimeupto31March20X7.On31January20X7,KutchenacquiredtheremainingNCIinMach.ThepaymentfortheNCIwasstructuredsothatitcontainedafixedinitialpaymentandaseriesofcontingentamountspayableoverthefollowingtwoyears.ThecontingentpaymentsweretobebasedonthefutureprofitsofMachuptoumamount.Kutchenfeltthatthefixedinitialpaymentwasanequitytransaction.Additionally,Kutchenwasunsureastowhetherthecontingentpaymentswereeitherequity,financialliabilitiesorcontingentliabilities.Afteraboarddiscussionwhichcontaineddisagreementastotheaccountingtreatment,KutchenispreparingtodisclosethecontingentpaymentsinaccordancewithIAS®37Provisions,ContingentLiabilitiesandContingentAssets.Thedisclosurewillincludetheestimatedtimingofthepaymentsandthedirectors’estimateoftheamountstobesettled.Requirement:AdviseKutchenonthedifferencebetweenequityandliabilities,andontheproposedaccountingtreatmentofthecontingentpaymentsonthesubsequentacquisitionof20%ofMach.(8marks)AnswerTheFrameworkdefinesaliabilityasapresentobligation,arisingfrompasteventsandthereisanexpectedoutflowofeconomicbenefits.IAS32FinancialInstruments:PresentationestablishesprinciplesforpresentingfinancialinstrumentsasliabilitiesorIAS32doesnotclassifyafinancialinstrumentasequityorfinancialliabilityonthebasisofitslegalformbutonthesubstanceoftheThekeyfeatureofafinancialliabilityisthattheissuerisobligedtodelivereithercashoranotherfinancialassettotheholder.Anobligationmayarisefromarequirementtorepayprincipalorinterestordividends.Incontrast,equityhasaresidualinterestintheentity’sassetsdeductingallofitsAnequityinstrumentincludesnoobligationtodelivercashoranotherfinancialassettoanotherentity.AcontractwhichwillbesettledbytheentityreceivingordeliveringafixednumberofitsownequityinstrumentsinexchangeforafixedamountofcashoranotherfinancialassetisanequityHowever,ifthereisanyvariabilityintheamountofcashorownequityinstrumentswhichwillbedeliveredorreceived,thensuchacontractisafinancialassetorliabilityasapplicable.Thecontingentpaymentsshouldnotbetreatedascontingentliabilitiesbuttheyshouldberecognisedasfinancialliabilitiesandmeasuredatfairvalueatinitialrecognition.【MJ：financialcontract】IAS37Provisions,ContingentLiabilitiesandContingentAssetsexcludesfromitsscopecontractswhichareexecutoryinnature,andthereforepreventstherecognitionofaliability.Additionally,thereisnoonerouscontractinthisscenario.Contingentconsiderationforabusinessmustberecognisedatthetimeofacquisition,inaccordancewithIFRS3BusinessCombinations.However,IFRSdonotcontainanyguidancewhenaccountingforcontingentconsiderationfortheacquisitionofaNCIinasubsidiary.ThecontractforcontingentpaymentsdoesmeetthedefinitionofafinancialliabilityunderIAS32.KutchenhasanobligationtopaycashtothevendoroftheNCIunderthetermsofacontract.ItisnotwithinKutchen’scontroltobeabletoavoidthatobligation.TheamountofthecontingentpaymentsdependsontheprofitabilityofMach,whichitselfdependsonanumberoffactorswhichareuncontrollable.【MJ：Q3 IAS32statesthatacontingentobligationtopaycashwhichisoutsidethecontrolofbothpartiestoacontractmeetsthedefinitionofafinancialliabilitywhichshallbeinitiallymeasuredatfairSincethecontingentpaymentsrelatetotheacquisitionofthetheoffsettingentrywouldberecogniseddirectlyin66Financialassets: –whenthecontractualrightstothecashflowsexpire(e.g.becauseacustomerhaspaidtheirdebtoranoptionhasexpiredworthless);or–thefinancialassetistransferred(e.g.sold),basedonwhethertheentityhastransferredsubstantiallyalltherisksandrewardsofownershipofthefinancialasset.Financialliabilities:–whentheobligationisdischarged(e.g.paidcancelledorWhereapartofafinancialinstrument(orgroupofsimilarfinancialmeetsthecriteriaabove,thatpartis2018/092018/09TheacquisitionofOn1July20X5,Bananaacquired$10million5%bondsatparwithinterestbeingdueat30Juneeachyear.Thebondsarerepayableatasubstantialpremiumsothattheeffectiverateofinterestwas7%.Bananaintendedtoholdthebondstocollectthecontractualcashflowsarisingfromthebondsandmeasuredthematamortisedcost.On1July20X6,Bananasoldthebondstoathirdpartyfor$8million.Thefairvalueofthebondswas$10.5millionatthatdate.Bananahastherighttorepurchasethebondson1July20X8for$8.8millionanditislikelythatthisoptionwillbeexercised.ThethirdpartyisobligedtoreturnthecouponinteresttoBananaandtopayadditionalcashtoBananashouldbondvaluesrise.Bananawillalsocompensatethethirdpartyforanydevaluationofthebonds.DiscusshowthederecognitionrequirementsofIFRS9FinancialInstrumentsshouldbeappliedtothesaleofthebondincludingcalculationstoshowtheimpactontheconsolidatedfinancialstatementsfortheyearended30June20X7.(7IFRS9FinancialInstrumentsrequiresthatafnancialassetonlyqualifesforderecognitiononcetheentityhastransferredthecontractualrightstoreceivethecashflowsfromtheassetorwheretheentityhasretainedthecontractualrightsbuthasanunavoidableobligationtopassonthecashflowstoathirdparty.ThesubstanceofthedisposalofthebondsneedstobebyaconsiderationoftherisksandrewardsofBananahasnottransferredthecontractualrightstoreceivethecashflowsfromthebonds.ThethirdpartyisobligedtoreturnthecouponinteresttoBananaandtopayadditionalamountsshouldthefairvaluesofthebondsincrease.Consequently,Bananastillhastherightsassociatedwiththeinterestandwillalsobeneftfromanyappreciationinthevalueofthebonds.Bananastillretainstherisksofownershipasithastocompensatethethirdpartyshouldthefairvalueofthebondsdepreciateinvalue.Itwouldbeexpectedthat,ifthesalewereagenuinetransferofrisksandrewardsofownership,thenthesalespricewouldbeapproximatetothefairvalueofthebonds.Itwouldonlybeinunusualcircumstancessuchasa dsaleofBanana’sassetsarisingfromseverefnancialdiffcultiesthatthiswouldnotbethecase.Thesalespriceof$8millioniswellbelowthefairvalueofthebondsof$10·5million.Additionally,Bananaislikelytoexercisetheiroptiontorepurchasethebonds.Itcanbeconcludedthatnotransferofrightshas cethereforetheassetshouldnotbeTomeasuretheassetatamortisedcost,theentitymusthaveabusinessmodelwheretheyintendtocollectthecontractualcashflowsoverthelifeoftheasset.Bananamaintainstheserightsandthereforethesaledoesnotcontradicttheirbusinessmodel.ThebondsshouldcontinuetobemeasuredatamortisedcostintheconsolidatedfnancialstatementsofBanana.Thevalueofthebondsat30June20X6wouldhavebeen$10·2million($10million+7%x$10million–5%x$10million).Amortisedcostprohibitsarestatementtofairvalue.Thevalueofthebondsat30June20X7shouldbe$10·414million($10·2million+7%x$10·2million–5%x$10Theproceedsof$8millionshouldbetreatedasafnancialliabilityandwouldalsobemeasuredatamortisedcost.Aninterestchargeof$0·8millionwouldaccruebetween1July20X6and1July20X8,beingthedifferencebetweenthesaleandrepurchasepriceofthebonds.MeasurementoffinancialInvestmentsinequityinstruments(suchasaninvestmentintheordinarysharesofanotherentity)aremeasuredatfairvaluethroughothercomprehensivefairvaluethroughprofitorFairvaluethroughprofitorThenormalexpectationisthatequityinstrumentswillhavethedesignationoffairvaluethroughprofitorlossFairvaluethroughothercomprehensiveItispossibletodesignateanequityinstrumentasfairvaluethroughothercomprehensivee,providedthatthefollowingconditionsarecompliedwiththeequityinstrumentmustnotbeheldfortrading,andtheremusthavebeenanirrevocablechoiceforthisdesignationuponinitialrecognitionoftheassetFairFairvaluethroughprofitorInvestmentsinequityinstrumentsthatareclassifiedasfairthroughprofitorlossareinitiallyrecognisedatfairTransactioncostsareexpensedtoprofitorAtthereportingdate,theassetisrevaluedtofairvaluewithgainorlossrecordedinthestatementofprofitorFairvaluethroughothercomprehensiveInvestmentsinequityFairvaluethroughothercomprehensiveAtthereportingdate,theassetisrevaluedtofairvaluewiththegainorlossrecordedinothercomprehensivee.Thisgainorlosswillnotbereclassifiedtoprofitorlossinfutureperiods.DividendsarerecognisedinprofitorlossunlesstheyclearlyrepresentarecoveryofpartofthecostofanExEx2019/12Q3aDigiwireCohasdevelopedanewbusinessmodelwherebyitsellsmusiclicencestoothercompanieswhichthendeliverdigitalmusictoconsumers.DigiwireCohasagreedtosellClamusicCo,anunlistedtechnologystart-,athree-yearlicencetosellDigiwireCo’scatalogueofclassicalmusictothepublic.20X6,whichisthefirstdayofthelicenceAsrevenueforthethree-yearlicence,ClamusicCohasissuedsharestoDigiwireCoequivalenttoa7%shareholding.Votingrightsareattachedtotheseshares.20X6,whichisthefirstdayofthelicenceOn1January20X6,ClamusicCowasvaluedatbetween$4.5millionbyaprofessionalvaluerwhousedamarketbasedapproach.At31December20X6,afurthersharevaluationreporthadbeenproducedbythesameprofessionalvaluerwhichindicatedthatClamusicCowasvaluedintheregionof$6.5million.AdvisethedirectorsofDigiwireCoontherecognitionmeasurementofClamusicCosharesreceivedasrevenueforthesaleofthethree-yearlicenceandhowtheyshouldbeaccountedforinthefinancialstatementsfortheyearended31December20X6;andInthiscase,themarketapproachhasbeenusedandtherangeofvaluesissignificantbasedupontheprofessionalvaluationTherangeoffairvaluesfora7%holdingofshareswould$315,000(7%of$4.5million)atthedateofthecontract$455,000(7%of$6.5million)attheyearDigiwireCowouldthereforerecogniserevenueof$315,000forthereceiptofsharesfromClamusicCo,asthefairvalueofnon-cashconsiderationismeasuredatthecontractinceptiondateof1JanuaryClamusicCosharevaluationat31DecemberTheshareswillberecognisedat$455,000at31December20X6.AllequityinvestmentsinscopeofIFRS9FinancialInstrumentsshouldbemeasuredatfairvalueinthestatementoffinancialposition,withvaluechangesbeingrecognisedinprofitorloss.Ifanequityinvestmentisnotheldfortrading,anentitycanmakeanirrevocableelectionatinitialrecognitiontomeasureitatfairvaluethroughothercomprehensivee(FVTOCI)withonlydividenderecognisedinprofitorloss.IfDigiwireCoelectstopresenttheremeasurementsthroughothercomprehensivee(OCI),gainsareneverrecycledthroughprofitorloss.Thismeansthat,iftheinvestmentinClamusicCoissuccessful,whentheinvestmentissold,therewillbenoprofitorlosseffectsinceallgainswillalreadyhavebeenrecognisedinOCI.Thusattheyearend,againof$140,000($455,000–$315,000)willberecordedprofitorlossorOCIdependentuponanyelectionbeingFinancialassetsthataredebtinstrumentscanbemeasuredatinoneofthreeways:fairvaluethroughothercomprehensivefairvaluethroughprofitorIFRS9saysthataninvestmentinadebtinstrumentismeasuredamortisedcostTheentity'sbusinessmodelistocollecttheassetscontractualcashflows.Thismeansthattheentitydoesnot nonsellingtheassetpriortomaturitybutratherintendstoholdituntilThecontractualtermsofthefinancialassetgiverisetocashflowsthataresolelypaymentsofprincipal,andinterestontheprincipalamountoutstandingAninvestmentinadebtinstrumentismeasuredatfairvaluethroughothercomprehensiveeif:Theentity'sbusinessmodelinvolvesbothcollectingcontractualcashflowsandsellingfinancialassets