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I am confused about when to use amortised cost or FV through OCI for certain financial asset( debt). Both classification is based on business model and cash flow. How to differentiate the classification then.
I believe FVTOCI isn’t based on the contractual cashflows test. So if there are no contractual cashflows then it’s FVTOCI.
But, In the BPP book the contractual cash flow is among the criteria for the classification at FV through OCI
Business model whose objective is achieved by BOTH collecting contractual CF and selling financial assets -> FV through OCI
According to the lectures on here it’s:
Equity:
FV through Pnl – Default treatment
FV through OCI – Only if there is intent to hold the asset for strategic reasonsDebt:
FV through OCI – Default treatment
Amortise – Only if it meets both the Business Model Test and Contractural CashFlows TestUnless I’m remembering it wrong…
Its simple.
Amortised cost and OCI both have to meet the same two tests. The difference is in the Business model test for OCI is that the business BOTH holds and sell, as opposed to for amortised costs, where the business holds only.
FVTPL is the default position given the above tests aren’t met.
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