This is part of the classification of financial assets. A financial asset is classified as subsequently measured at fair value through other comprehensive income (FVOCI) if:
- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (the SPPI test, see Solely Payments of Principal and Interest); and
- is held in a business model (see business model test) in which assets are managed both in order to collect contractual cash flows and for sale (see Hold to collect and sell). [IFRS 9 4.1.2A]
Financial assets at fair value through other comprehensive income are measured at fair value.
- Loans and receivables (loans, receivables, investments in debt instruments and other similar assets). Interest revenue, impairment gains and losses, and a portion of foreign exchange gains and losses, are recognized in profit and loss on the same basis as for assets at amortized cost. Changes in fair value are recognized initially in other comprehensive income (OCI). When the asset is derecognized or reclassified, changes in fair value previously recognized in OCI and accumulated in equity are reclassified to profit and loss on a basis that always results in an asset measured at FVOCI having the same effect on profit and loss as if it were measured at amortized cost.
- Investments in equity instruments – Not held for trading Dividends are recognized when the entity’s right to receive payment is established, it is probable the economic benefits will flow to the entity and the amount can be measured reliably. Dividends are recognized in profit and loss unless they clearly represent a recovery of a part of the cost of the investment, in which case they are included in OCI. Changes in fair value are recognized in OCI and are never recycled to profit and loss, even if the asset is sold or impaired.
- Investments in equity instruments – Held for trading These equity instruments are valued at fair value through profit or loss. All changes in fair value are recorded in profit or loss. Dividends are recognized when the entity’s right to receive payment is established, it is probable the economic benefits will flow to the entity and the amount can be measured reliably. Dividends are recognized in the movements for the year of the investment in the equity instrument (deducted from fair value).
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