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ACCA Strategic Professional · Strategic Business Reporting (International) · Fair value measurement

Brantley plc designates a financial liability at fair value through profit or loss. During the year its own credit risk deteriorated, reducing the liability's fair value by $3 million, of which $2 million is due to the change in own credit risk and $1 million to changes in market interest rates. Under IFRS 9 and IFRS 13, how should Brantley report the $2 million?

The $2 million gain from own credit risk is recognised in other comprehensive income and is not recycled to profit or loss, while the $1 million from market interest rates goes to profit or loss. This follows IFRS 9 for liabilities designated at fair value through profit or loss.

  1. AGain in profit or loss, together with the $1 million
  2. BGain in other comprehensive income, not subsequently reclassified to profit or loss, with the $1 million in profit or lossCorrect
  3. CGain in other comprehensive income, later recycled to profit or loss on derecognition, with the $1 million in profit or loss
  4. DIgnored, as own credit risk is excluded from fair value

Explanation

Under IFRS 9, for liabilities designated at FVTPL, the part of the fair value change due to own credit risk goes to OCI unless that creates or enlarges an accounting mismatch. Amounts in OCI are not recycled to profit or loss, though they may be transferred within equity. The $1 million interest-rate element goes to profit or loss. Own credit risk is included in fair value under IFRS 13.

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