Debt instrument measured at FVOCI

For financial assets that are debt instruments measured at FVOCI, both the amortised cost and the fair value of the instrument are relevant. The reason for this is the objective of categorising a debt instrument as FVOCI is that both the contractual cash flows characteristic and the fair value of the instrument are relevant as the asset is held to receive contractual cash flows as well as to buy or sell such assets. For the contractual cash flow characteristic, amortised cost is relevant as the interest revenue would be based on the effective rate calculated at the time of inception of the debt instruments. The fair value of such instruments is also relevant because the entity would want to profit from the sale of such instrument whenever the opportunity for the same exists. As a result of this, the debt instrument should always be shown at the fair value in the balance sheet and for the purpose of recognising interest revenue, the effective interest rate method should be applied to such assets based on the amortised cost. The disclosure requirements for debt instruments measured at FVOCI, specifically requires that the impairment allowance should not be reduced from the fair value nor should it be shown as a deduction from the fair value of the instrument but, instead, should be shown as accumulated loss allowance (OCI) as part of equity. So, in a nutshell, the expected credit losses are not reduced from the carrying amount in the balance sheet and the carrying value remains at fair value only.

  • Interest revenue is calculated based on EIR at the opening amortised cost.
  • Foreign exchange gains and losses on such instruments are recognised in the profit and loss account
  • Impairment gains and losses are recognised in the profit and loss account.
  • The corresponding impairment gain or loss, as the case may be, is shown as part of the accumulated impairment account.
  • When the financial asset is de-recognised, the cumulative gains and losses previously recognised as other comprehensive income is reclassified or recycled from equity to profit or loss as reclassification adjustment including the balance in the accumulated impairment account, if any.

Miscellaneous items – Ind AS 21

Miscellaneous items – Ind AS 21 Intra-group transactions While following the normal consolidation process, intra-group balances and intra-group transactions of a subsidiary are eliminated, thereby incorporating the results and the financial position of the foreign operation with that of the reporting entity. However, when an intra-group monetary item is eliminated against the corresponding …
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Modification of contractual cash flows

Modification of contractual cash flows Modification due to renegotiation When the contractual cash flows of a financial asset are renegotiated or otherwise modified and the renegotiation or modification does not result in the de-recognition of that financial asset, an entity shall recalculate the gross carrying amount of the financial asset and shall …
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Equity derivatives and interest rate derivatives

Equity derivatives and interest rate derivatives Equity derivatives The important difference between futures contract and options contract is that in the case of a futures contract, the risk-reward is symmetric, whereas in an options contract, the risk reward is asymmetric. In other words, if a person enters into a futures contract, he …
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Hedge Accounting as per indas109 / IFRS 9

Hedge Accounting as per Ind AS 109 / IFRS 9 It may be useful to understand the genesis of hedge accounting as to how the process itself matured over the last two decades. Even though this may not be relevant in the context of Indian Accounting Standards as we in India …
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Accounting for Investments – Volume 1

A financial asset shall be measured at FVOCI if both of the following conditions are met: (a) the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and (b) the contractual terms of the financial asset give …
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Accounting treatment for FVOCI Instruments

Accounting treatment for FVOCI Instruments Is there any difference between the accounting treatment for equity instruments and debt instruments classified as Fair Value Through Other Comprehensive Income (FVOCI)?  The answer is ‘yes’. Frequently participants in my class ask me the underlying reason for such a difference in the accounting treatment when …
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