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 |