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Hi Stephen,
What is the default accounting treatment of financial asset – Is it FVPL or FVOCI?
The reason I am asking is Kaplan study material states that generally equity instruments are measured at FVPL unless specifically designated otherwise.
.i.e. The initial transaction costs are expensed at P/L.
However, one of the recent open tuition lecture from youtube states “Financial assets are initially recognized at FV plus transaction costs unless classified as FV through P and L where transaction costs are immediately recognized through P and L.” (https://www.youtube.com/watch?v=E1fCe_yVfT8)
So, as these two resources are conflicting the initial default treatment of Financial asset, I just want to be crystal clear in my mind and find out if there is anything I am missing please.
Thank you.
Fair point.
If the company says nothing – FVPL.
If the company makes an irrevocable election – FVOCI.
In reality most companies would probably make the election – you don’t want gains or losses messing up your P&L!
The examiner will tell you if the election has been made.
Feel free to come back if it’s not clear.
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