Financial asset categorised as FVOCI
When will a financial asset be categorised as fair value through other comprehensive income?
A financial asset shall be measured at fair value through other comprehensive income if both of the following conditions are met:
- the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Here, the term principal refers to the fair value of the financial asset on initial recognition and not the money due. Interest is a consideration for time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs. Interest also includes a profit margin.
