Fair value through profit or loss—any financial assets that are not held in one of the two business models (‘Hold to collect‘ and ‘Hold to collect and sell‘) mentioned are measured at fair value through profit or loss.
Fair value through profit or loss (FVPL) is the residual category in IFRS 9. A financial asset is classified and measured at FVPL if the financial asset is:
- A held-for-trading financial asset;
- A debt instrument that does not qualify to be measured at amortised cost or FVOCI;
- An equity investment which the entity has not elected to classify as at FVOCI.
Examples of financial assets that are likely to fall into the FVPL category include:
- Investments in shares of listed companies that the entity has not elected to account for as at FVOCI;
- Derivatives that have not been designated in a hedging relationship, e.g.:
- Interest rate swaps;
- Commodity futures/option contracts;
- Foreign exchange futures/option contracts;
- Investments in convertible notes, commodity linked bonds;
- Contingent consideration receivable from the sale of a business;
- Any other financial assets that fail SPPI.
Other than for held for trading financial assets that must be carried at FVPL (e.g. derivatives), the FVPL category under IFRS 9 is a residual category. This is in contrast to IAS 39, where the residual category is ‘Available-for-Sale’ (FVOCI). Under IFRS 9, consideration is first given to whether a financial asset is to be measured at amortised cost or FVOCI and, if it is not, it will be measured at FVPL.