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ACCA Applied Skills · Financial Reporting · Financial instruments

Kestrel holds 10,000 shares in an unlisted company, bought for $5 each, and made an irrevocable election to measure them at FVOCI. At the year end the fair value is $7 per share. Later the shares are sold for $8 each. Which statement is correct under IFRS 9?

The $20,000 gain goes to other comprehensive income, and on disposal it is not recycled to profit or loss. Recycling applies only to FVOCI debt instruments, not to equity investments for which the FVOCI election has been made.

  1. AThe $20,000 gain at the year end is recognised in other comprehensive income, and on sale the cumulative gain is not recycled to profit or lossCorrect
  2. BThe $20,000 gain at the year end is recognised in profit or loss, because equity is not eligible for FVOCI
  3. CThe $20,000 gain is recognised in other comprehensive income, and on sale it is reclassified to profit or loss
  4. DThe $20,000 gain is ignored until the shares are sold

Explanation

Equity instruments not held for trading may be elected FVOCI. Fair value gains go to OCI and are never recycled to profit or loss on disposal, though the amount may be transferred within equity. Recycling applies to FVOCI debt instruments only.

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