Trade date and settlement date accounting – exchange of non-cash financial assets

On 29 December 2013 (trade date), an entity enters into a contract to sell Note Receivable A, which is carried at amortised cost, in exchange for Bond B, which will be classified as held for trading and measured at fair value. Both assets have a fair value of €1,010 on 29 December, while the amortised cost of Note Receivable A is €1,000. The entity uses settlement date accounting for loans and receivables and trade date accounting for assets held for trading.

On 31 December 2013 (financial year-end), the fair value of Note Receivable A is €1,012 and the fair value of Bond B is €1,009. On 4 January 2014 (settlement date), the fair value of Note Receivable A is €1,013 and the fair value of Bond B is €1,007.

The simultaneous recognition, between 29 December and 4 January, of both the asset being bought and the asset being given in consideration may seem counter-intuitive. However, it is no different from the accounting treatment of any purchase of goods for credit which results, in the period between delivery of, and payment for, the goods, in the simultaneous recognition of the liability to pay the supplier and the cash that will be used to do so.