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Hi,
I’ve got a question about financial instruments, and the logic behind why some go through P&L, whilst others go through OCI. Firstly, can I check I understand the rules correctly? I find it somewhat confusing.
Financial assets – if business model and not equity, choice of amortised cost and FVTOCI. If non business model then FVTPL, unless equity instrument, in which case irrevocable election can be made to recognize through OCI.
Financial liabilities – if business model choice of amortised cost and FVTPL. If non business model then amortised cost only?
If I understand the reasoning about why some go through P&L, some go through OCI, and why some must be fair valued, where as some can be amortised, I think I might remember the rules better.
Thanks for your help.
Have to agree about the confusion – I’ve just been studying and have noticed the lecturers saying receivable loans are either FVTPL or AC – no mention of FVTOCI!
IFRS 9 makes it a bit more straightforward than it used to be?!?!? I’ll try and help by thinking about what the financial instrument actually relates to.
Investment in shares = financial asset
FVTPL (default)
FVTOCI is purposeful intent to hold the shares for the long-term.
Investment in debt = financial asset
Amortised cost if if meets the business model and cash flow characteristic tests
Issue of debt = financial liability
Amortised cost if non-traded (no tests as with the investment in debt above)
FVTPL if traded
Hope that clears it up for both of you.
Thanks
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