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CA Final · Financial Reporting · Recognition and Derecognition of Financial Instruments

Himalaya Securities Ltd enters into a regular way purchase of listed equity shares on 29 March for Rs 5,00,000. The shares are classified as financial assets at fair value through profit or loss. Settlement is on 3 April, and the entity applies settlement date accounting. The fair value of the shares at the 31 March reporting date is Rs 5,12,000. How is the Rs 12,000 change in value treated at 31 March?

The Rs 12,000 increase is recognised in profit or loss. Under settlement date accounting, the fair value change between trade date and settlement date is treated like the acquired asset itself. Since the shares are FVTPL, the change goes to profit or loss.

  1. ARecognised in profit or lossCorrect
  2. BRecognised in other comprehensive income
  3. CNot recognised until the shares are received on 3 April
  4. DAdded to the cost of the shares on settlement and never recognised in profit or loss

Explanation

Under settlement date accounting, the change in fair value of the asset to be received is accounted for in the same way as for the acquired asset. The shares are classified as FVTPL, so the Rs 12,000 change is recognised in profit or loss. The 'not recognised' treatment applies only to amortised cost assets. OCI applies to FVTOCI assets.

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