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Appendix PCD-5 Calculation of the Investment Amount, Based on its Fair Value that Should be Deducted from Capital Base

Bank "x" with eligible capital of 1,000 before deductions has made investment in a commercial entity (cost 160) which is carried at fair value (200). The amount to be deducted is as follows:

Regulatory capital (before deductions) = 1,000

Equity investment at cost = 160

Equity investment at fair value = 200

Fair value gain = 40

Amount to be subjected to deduction (see Appendix CA-17 of CA module) = 200 - (40*.55) = 178

Excess investment amount above the 15% level = 178 - (1,000 X 0.15) = 28

The deduction should be as follows:

1. The asset side should be reduced by 50 (28 see above + 22 see Appendix CA-17 of CA Module)
2. The Capital Base shall be reduced as follows:
Fair value to be removed from Tier 2 (18/178*28) 2.82
Deduction of 50% of remaining amount from Tier 1 (28-2.83 = 25.17/2) 12.59
Deduction of 50% of the remaining amount from Tier 2 (28-2.83 = 25.17/2) 12.59
Total deduction from capital base 28.00