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ACCA Strategic Professional · Strategic Business Reporting (International) · Foreign transactions and entities

Kiln Co's functional currency is the dollar. It holds an investment in equity shares of a foreign company, designated at fair value through other comprehensive income. The shares are priced in euros. At the year end, the fair value in euros has risen and the euro has also strengthened against the dollar. Under IAS 21 and IFRS 9, how should the change in the dollar carrying amount be treated?

The whole change, including the exchange element, goes to other comprehensive income. The shares are a non-monetary item at fair value, and IAS 21 says the exchange component follows the gain or loss on the item, which is recognised in OCI for an FVOCI equity investment.

  1. AThe whole change, including the exchange element, is recognised in other comprehensive incomeCorrect
  2. BThe exchange element is recognised in profit or loss and the euro fair value change in other comprehensive income
  3. CThe whole change is recognised in profit or loss
  4. DThe exchange element is ignored until the shares are sold

Explanation

An equity investment at FVOCI is a non-monetary item measured at fair value in a foreign currency. IAS 21 requires translation at the rate on the date fair value was measured, and where the fair value gain is in OCI, the exchange component is also in OCI. The split into profit or loss would apply to monetary items such as FVOCI debt instruments' amortised cost element.

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