The big difference is where the gain or loss is recorded. Similar to FVPL, the instrument would then be revalued to fair value at the year end.
Using FVOCI, the alternative treatment, transaction costs can be capitalised as part of the initial cost of the investment. This is only an option if the equity investment is intended to be a long-term investment.Įquity instruments: fair value through other comprehensive income (FVOCI) It is important to note that this designation must be made on acquisition and the equity investments cannot retrospectively be treated as FVPL. Subsequently, the investment is revalued to fair value at each year end, with the gain or loss being taken to the statement of profit or loss.Īlternatively, equity instruments can be classified as fair value through other comprehensive income (FVOCI). The default category is fair value through profit or loss (FVPL).Įquity instruments: fair value through profit or loss (FVPL)įVPL is the default treatment for equity investments where transaction costs such as broker fees are expensed and not capitalised within the initial cost of the asset. There are two options here, depending on the intention of the entity. There are two types of financial asset (equity and debt instruments), which can be further split into different categories.Įquity instruments are likely to be shares that have been purchased in a company, but not enough to give the investee significant influence (associate), control (subsidiary) or joint control (joint venture). IFRS 9 is relevant to the Financial Reporting (FR) syllabus, and so this article takes a high-level review of its application to the following: Indeed, there is a well-known quote from a previous Chair of the International Accounting Standards Board (the Board) who said: ‘If you understand this, you haven’t read it properly.’ It is therefore no surprise that ACCA candidates also find it complex. International Financial Reporting Standard (IFRS®) 9 Financial Instruments is a complex standard, especially for users and preparers of financial statements.
#ASSET CLASSES AND FINANCIAL INSTRUMENTS QUIZ PROFESSIONAL#
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