Gains and losses from liabilities designated as FVTPL
How are the gains and losses from liabilities designated as at fair value through profit or loss account recognised?
An entity shall present a gain or loss on a financial liability that is designated as at fair value through profit or loss as follows:
- The amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability shall be presented in other comprehensive income; and
- The remaining amount of change in the fair value of the liability shall be presented in profit or loss unless the treatment of the effects of changes in the liability’s credit risk would create or enlarge an accounting mismatch in profit or loss.
If the splitting of fair value changes between profit and loss account and other comprehensive income would create or enlarge an accounting mismatch in profit or loss, then the entity shall present all gains or losses on that liability (including the effects of changes in the credit risk of that liability) in profit and loss account.
An accounting mismatch would be created or enlarged if presenting the effects of changes in the liability’s credit risk in other comprehensive income would result in a greater mismatch in profit or loss than if those amounts were presented in profit or loss.
To make that determination, an entity must assess whether it expects that the effects of changes in the liability’s credit risk will be offset in profit or loss by a change in the fair value of another financial instrument measured at fair value through profit or loss. Such an expectation must be based on an economic relationship between the characteristics of the liability and the characteristics of the other financial instrument. Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss. However, the entity may transfer the cumulative gain or loss within equity.
