Is there a choice to designate as FVTPL?
An entity has choice to designate a financial asset as measured at fair value through profit or loss. Explain.
The option to designate a financial asset at fair value through profit or loss (FVTPL) is not without restrictions. There are certain conditions to be satisfied and above all, the option should be exercised at the inception of the financial asset.
An entity may, at initial recognition irrevocably, designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an ‘accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. The option to designate at fair value through profit or loss however is irrevocable.
Designation as fair value through profit or loss is permitted provided that by doing so, it results in the financial statements presenting more relevant information. It should be noted that such a designation can be made only at initial recognition which is not revocable subsequently. The Standard also allows an entity to designate a group of financial instruments which may include financial assets, financial liabilities or both as at fair value through profit or loss provided that doing so results in more relevant information. The decision of an entity to designate a financial asset or financial liability as at fair value through profit or loss is similar to an accounting policy choice. However, unlike an accounting policy choice, it is not required to be applied consistently to all similar transactions.
