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The scenario is question 3.a(ii): https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/p2/exampapers/uk/P2UK_2012_jun_q.pdf
In the model answer to part b of this question, there is a paragraph: “However, IFRS 9 stipulates that if a liability is designated as being at fair value through profit or loss, changes in the fair value that are due to changes in the liability’s credit risk must be recognised directly in other comprehensiveincome rather than profit or loss. …. On the other hand, if changes in the fair value attributable to the credit risk of the liability create or enlarge an accounting mismatch in profit or loss, then all fair value movements are recognised in profit or loss”I want to clarify the answer: The sentence “all fair value movements are recognised in profit or loss” refer to “this liability together with some other assets or liabilities on a fair value basis”?
My understanding of last sentence in this paragraph that “If an entity manages and evaluates the performance of a particular liability together with some other assets or liabilities on a fair value basis, recognizing changes in fair value due to credit risk in OCI could distort the entity’s financial performance. In such cases, recognizing all fair value changes in P/L provides a more accurate reflection of the entity’s financial performance” is correct?1. Please refer to topic not question name in thread header.
2. Liabilities at FV
— if credit risk of company increases, then liability decreases
— it would be IMPRUDENT to recognise this gain in P&LDon’t forget that this exam has changed massively since 2012 – they are now assessing your ability to explain things in simple terms
So – focus on recent questions
What I ask here is the meaning of the sentence: “On the other hand, if changes in the fair value attributable to the credit risk of the liability create or enlarge an accounting mismatch in profit or loss, then all fair value movements are recognised in profit or loss”. Whether : “all fair value movements ” means “this liability together with some other assets or liabilities on a fair value basis”?
Taking account into the scenario, does this sentence mean that :“If an entity manages and evaluates the performance of a particular liability together with some other assets or liabilities on a fair value basis, recognizing changes in fair value due to credit risk in OCI could distort the entity’s financial performance. In such cases, recognizing all fair value changes in P/L provides a more accurate reflection of the entity’s financial performance” ?
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