recognised within OCI is reclassified from equity to profit or lossFor equity instruments measured at fair value throughOCI:•changes in fair value will be included within OCI•dividends received from the equity instruments will be included withinprofit or loss, and•changes in fair value of equity instruments that are included within OCIshallnotbe reclassified to profit or loss on the occurrence of an eventsuch as the sale of the investments
Example: Accounting for a financial asset at fair value through
other comprehensive income
On 1 July 2018, Bear Ltd acquired 100 000 shares in Island Ltd at a price of $10 each. There
were brokerage fees of $1500. The closing market price of Island Ltd shares on 30 June
2019
—
which is the
entity’s
financial year end
—
was $12.
REQUIRED
Provide the required accounting journal entries for Bear Ltd to account for the investment in
Island Ltd using fair value through other comprehensive income.
1 July 2018
Dr
Cr
Investment in Island Ltd
1 001 500
Cash
1 001 500
For financial assets measured at FVOCI, transaction costs associated with the
acquisition of the asset shall be included as part of the cost of the asset.
30 June 2019
Dr
Cr
Investment in Island Ltd
198 500
Gain in fair value (included within OCI)
198 500
There would be a reserve that is part of equity, which would accumulate the gains that are
included within OCI. For equity instruments, this reserve cannot subsequently be
transferred to profit or loss.
•Initially measured at fair value•Subsequently measured at:oamortised cost using the effective interest method with changes recognised in profit or loss;orofair value through profit or loss, in whichcase:▪amount of the change in fair value relates to changes in own credit risk to be recognised in OCI;and▪remaining amount of the change (e.g., change inthe general level of interest rate) in profit orloss.Fair value through OCI–is not allowed (except for some hedges –covered next week)•Majorimprovement over previous standard AASB139(now replacedby AASB 9) under which deterioration in own credit risk resulted in a gain in P&L.Recognition and measurement of financial liabilities
