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CFA Level I · CFA Level I Exam · Analyzing Balance Sheets

Under IFRS, an investor holds an equity investment in a listed company that is not held for trading and for which it made an irrevocable election at initial recognition. Fair value changes on this investment are most likely recognized in:

Fair value changes are most likely recognized in other comprehensive income without later recycling to profit or loss. IFRS 9 allows this irrevocable election for equity investments not held for trading. Without the election, changes would go through profit or loss.

  1. Aother comprehensive income, without later recycling to profit or lossCorrect
  2. Bprofit or loss in the period the changes occur
  3. Cretained earnings only when the investment is sold

Explanation

IFRS 9 permits an irrevocable election for non-trading equity investments to present fair value changes in OCI. Gains and losses are not recycled to profit or loss on disposal, though dividends are recognized in profit or loss. Profit or loss is the default for equity not elected, and the retained earnings option misdescribes the timing.

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