- This topic has 3 replies, 2 voices, and was last updated 6 years ago by
.
- Posts
Hi Sir I am confused about how to account the financial asset designated at fvtoci.
From my understanding, if the financial asset designated at fvtoci was impaired at the first year end, the carrying amount of the financial asset should be adjusted to fair value of the financial asset. For the second year, the interest income is calculated using the new effective rate based on the revised fair value of financial asset.
However the solution given by March/jun 2017 Exam paper Q1 seems calculating the interest income of the second year based on the original carrying amount ($50 instead of $42) before fair value adjustment and the original effective rate. I am so confused about the treatment.
May i know how to deal with it correctly?
Thank you very much.
Hi,
The effective rate and coupon rate are the same, so we would always apply the effective rate to the initial amounts if there were no change in fair value. Any increase in the value of the bond is reduced by the same amount.
Just because there is a change in the fair value, doesn’t mean that we then change the amounts recognised in the initial accounting treatment.
Thanks
Hi Sir thank you so much for your speed reply. Really appreciated.
May I know for finance asset designated at amortised cost and Fvtpl, should I still use the original effective rate based on initial b/f carrying amount to calculate the interest income even through there was a change in fv?
- You must be logged in to reply to this topic.