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Dear Sir,
Kindly help me understand the following extract I’m extremely confused about the concepts and principles behind this treatment, I’ve gone through lecture notes and book again yet I’m unable to get this:
”When the financial asset is measured at fair value though other
comprehensive income, the loss allowance is not adjusted against the asset’s
carrying amount (otherwise the asset will be held below fair value). Therefore,
the loss allowance is charged to profit or loss, with the credit entry being
recorded in other comprehensive income (essentially, this adjustment
reclassifies $0.2 million of the earlier downwards revaluation from other
comprehensive income to profit or loss).”If you are talking about expected FUTURE credit loss on FVOCI instrument.
Dr P&L Cr What?
IFRS 9 says you cannot credit the financial asset.
So for the sake of crediting something, we credit OCI (a bit of a dumping ground)
Bear in mind that this part of Aron is from Kaplan and not the examiner…….so it may be unnecessarily technical. I would certainly never teach it or tell students to worry about it.
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