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Hi, for consolidation I have a question regarding changes in the fair value in other financial equity instruments.
Do we classify increase or decrease in fair value in retained earnings or revaluation reserves?
The extract from the 2 different questions confuse me
1) In reporting date, fair value of financial assets-equity investment of P and S are 3 (increased 1mil) million and 5 (decreased 3 mil) million respectively ?
2) Packer purchased shares in another company at acquisition for 97 million. At reporting date, value of this shares increased to 99 million
Answer for 2: https://www.coursehero.com/file/p584e795/Workings-W1-Group-structure-Packer-Scott-90-01514-5-months-ago-PAPER-F7/Thank you
IFRS 9 has provided three categories for classification of financial assets, namely
Financial Assets Through Profit or Loss (FVTP/L)
Financial Assets Through Other Comprehensive Income (FVTOCI)
Amortised CostEquity instruments can be classified in first two categories (FVTPL and FVTOCI) while debt instrument can be classified in any of the three categories.
The classification depends primarily on the business model of the entity i.e. the purpose which these instruments are held for.The category is decided at the start. Once the category is set, fair value changes at the year end are accounted for accordingly. For financial assets classified under FVTPL, fair value changes are taken directly to SOPL while those of FVTOCI are recorded in OCI.
In consolidation where Statement of Comprehensive Income is not required to be prepared, we record all items, that were to be recorded in SOPL, in Retained Earnings. While those that belong to OCI are recorded in Other Components of Equity, such as Retained Earnings.
So for example, the fair value changes in FVTPL would be recorded in Retained Earnings and those of FVTOCI will be recorded in Other Components of Equity.
I am not sure about the second question as there seems to be no mention of the change in value in the answer.
Hope this helps.
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