Available-for-sale financial assets are measured at fair value with fair value gains or losses recognised in other comprehensive income (FVOCI). The gain or loss on initial recognition of the fair value at the date of recognition as available-for-sale (AFS) is recorded as a separate reserve within equity. Subsequent changes are also recorded in OCI and against this reserve. The reserve naming is not prescribed in IFRS.
In practice, the most common types of equity instruments that are classified AFS financial asset are:
- Direct equity investments that do not meet the criteria to be accounted for as an subsidiary, joint arrangement or associate, and
- Investments in unit trusts or money market funds that themselves invest in a pool of debt and equity instruments.
On disposal of the investment the cumulative change in fair value must remain in Other Comprehensive Income and is not recycled to profit or loss. However, entities have the ability to transfer amounts between reserves within equity (ie between the FVOCI reserve and retained earnings).« Go to IFRS Jargon