ACCA ICAEW Financial Accounting and Reporting Practice Exam 2026 – Your Comprehensive All-in-One Guide to Exam Success!

Financial instruments are initially measured at fair value plus transaction costs, according to IFRS 9. This approach ensures that the measurement reflects both the price paid for the financial instrument and any additional costs incurred to acquire it, which are necessary to get the financial instrument ready for use.

When financial instruments are acquired, the fair value represents the market price at the date of acquisition. However, transaction costs, which include fees and commissions, are added to this fair value to arrive at the total cost of acquiring the instrument. This is particularly important for financial instruments that are not traded in an active market, where the fair value may not reflect all costs incurred.

This method of initial measurement contrasts with simply using the cost of acquisition, as it takes into account the broader financial context and costs associated with the transaction, providing a more comprehensive view of the value that is reported on the balance sheet. Other options, such as market value or book value, do not align with the IFRS 9 requirements for the initial recognition of financial instruments.