FVOCI (equity instruments) and FVOCI (debt instruments)
What is the difference FVOCI (equity instruments) and FVOCI (debt instruments)
Debt instruments are classified as FVOCI if and only if both the following conditions are satisfied, viz, (a) financial asset is held within the business model whose objective is achieved by both collecting directly cash flows and selling of financial assets, and (b) the contractual terms of the financial assets represents solely payments of principal and interest. However, in the case of equity shares, the entity has irrevocable election choice that can be exercised on an instrument by instrument basis to classify such instruments as FVOCI. The main difference between debt instruments classified as FVOCI and equity instruments classified as FVOCI is that in the former the classification arises on account of evaluation of the business model as well as characteristics of the contractual cash flows, whereas, in the later, an entity can exercise the option to classify an equity instrument as FVOCI by exercising the option to do so, albeit irrevocable with certain strings attached to the same.
The main difference between the two is the way in which the accumulated gains or losses from such instruments are treated. The accumulated gains or losses from debt instruments (FVOCI) are reclassified to the profit and loss account on liquidation of the financial assets, whereas, for equity, the instruments (FVOCI), the accumulated gains or losses in the OCI remains in OCI even on liquidation of such financial assets and is never recycled to the profit and loss account.