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On 1 March 20X6, Carsoon invested in a debt instrument with a fair value of S6 million and has assessed that the financial asset is aligned with the fair value through other comprehensive income business model.
During the year to 28 February 20X7, there was a change in interest rates and the fair value of the instrument seemed to be affected. The instrument was quoted in an active market at S5.3 million.
There has not been a significant increase in credit risk since 1 March 20X6, and expected credit losses should be measured at an amount equal to 12-month expected credit losses of $400,000.The answer says :- $0.4m worth of impairment would be charged to P&L, & $0.3m to OCI.
But the asset is already impaired for $0.7m right? So shouldn’t the 0.7 be recognised in P&L? And the 0.4m as Credit Risk Allowance in OCI?CA = 6
FV = 5.3Loss = 0.7
The loss has NOT yet been recognised. Now we must recognise it.
Reasons for loss:
1. Bad debt stuff = 0.4 = P&L
2. Interest rate stuff = 0.3 = OCIOkay, is it just me or the question has got confusing wordings?
Because I thought that the drop in FV is worth 0.7m, on top of that, there is a ECL that has to be recorded on the remaining 5.3m amount!
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