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Stephen Widberg.
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yt3401
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Hi
I was doing the Financial instruments TYU 7 Tokyo question in the kaplan study text and for part a) we measured the debt instrument at amortized cost but in part b) we measured it at FVOCI. In the answer it says that “the amounts recognized in profit or loss as interest income in part b) must be the same as if the asset was simply held at amortized cost. Therefore the interest income figures are the same as in part a)”
I dont understand why this is so because the closing balance for the first year is the fair value (the calculated total has been revalued to fair value at the end of the year because its FVOCI) and that’s what becomes the opening balance for the next year so why dont we calculate the interest on that value? Instead the interest is being calculated on the same total from last year that existed BEFORE we revalued it to fair value at the end of the previous year. Can someone please explain this to me?
Thanks
Stephen Widberg
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For future posts please show the topic NOT the question name as the thread header.
Your Kaplan example is correct – in practice you do AC calculation for the entire life of the bond,. The FC that you calculate at this stage will be the FC that you COPY (not calculate!) into your working for the bond measuring at FVOCI.
So FC is always the same!
yt3401
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