- This topic has 5 replies, 2 voices, and was last updated 6 years ago by
.
- Posts
When a business purchases a debt with an intention to resell it after some time, then which method will be used for measurement FVTPL or FVTOCI ? Because in the notes at page43 its written FVTPL while in the lecture (at 8:28) you are saying FVTOCI.
Is it so that till the time the instrument is held by the business, gains and loses will be recognised in OCI, while at the time of final sale gains/loss will be through SOPL ?Question 2
When the question mentions that it intents to hold the asset ( debt instrument) for foreseeable future then sell it at a specific date(which is before maturity). In this case how do we measure the asset… amortised cost, FVTPL or FVTOCI ?In part 3 of example 1(page.117) you are crediting the gain on disposal 30000 to OCI and then transferring the total amount in revaluation reserve i.e 110000 (80000+30000) to retained earnings all together. While in the solutions in notes it is shown that 30000 gain on disposal is credited to SPL and the 80000 remaining in OCI are transferred to retained earnings.
Are both methods right ? because ultimately retained earnings are going to increase by 110000. Which one to follow in exams?@alikhakar said:
When a business purchases a debt with an intention to resell it after some time, then which method will be used for measurement FVTPL or FVTOCI ? Because in the notes at page43 its written FVTPL while in the lecture (at 8:28) you are saying FVTOCI.
Is it so that till the time the instrument is held by the business, gains and loses will be recognised in OCI, while at the time of final sale gains/loss will be through SOPL ?Hi,
The rules for debt instruments are slightly different to those for equity instruments. If we hold the debt instrument to collect the contractual cash flows but intend to sell it before its maturity date then it will be classified as FVTOCI. On disposal the gains in OCI are transferred to retained earnings in the SOCIE.
Thanks
@alikhakar said:
Question 2
When the question mentions that it intents to hold the asset ( debt instrument) for foreseeable future then sell it at a specific date(which is before maturity). In this case how do we measure the asset… amortised cost, FVTPL or FVTOCI ?Hi,
Given that we are not going to hold it until maturity then it will fail the business model test and therefore it will be held at FVTOCI.
Thanks
@alikhakar said:
In part 3 of example 1(page.117) you are crediting the gain on disposal 30000 to OCI and then transferring the total amount in revaluation reserve i.e 110000 (80000+30000) to retained earnings all together. While in the solutions in notes it is shown that 30000 gain on disposal is credited to SPL and the 80000 remaining in OCI are transferred to retained earnings.
Are both methods right ? because ultimately retained earnings are going to increase by 110000. Which one to follow in exams?Hi,
Thanks for spotting this, the gain on disposal should be put through profit and loss. I’ll update the end of the video so that it is correct.
Thanks
- You must be logged in to reply to this topic.