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ACCA Strategic Professional · Strategic Business Reporting (International) · Financial instruments

Vega plc holds an equity investment designated at fair value through other comprehensive income (FVTOCI) with a carrying amount of $6.0m. Cumulative gains of $1.5m are in the FVTOCI reserve. Vega sells the investment for $6.0m. Which statement is correct under IFRS 9?

Vega recognises nothing in profit or loss on the sale. For equity investments designated at FVTOCI, cumulative gains are never recycled to profit or loss on derecognition, though the $1.5m reserve may be transferred to retained earnings within equity.

  1. ARecognise a $1.5m gain in profit or loss by recycling the reserve
  2. BRecognise a loss of $1.5m in profit or loss, since the cost was $4.5m
  3. CRecognise no gain or loss in profit or loss; the $1.5m reserve may be transferred within equity but is never recycledCorrect
  4. DReverse the $1.5m reserve through other comprehensive income as a reclassification adjustment

Explanation

Gains and losses on equity instruments designated at FVTOCI are never reclassified to profit or loss, including on derecognition. The sale at carrying amount gives no gain or loss, and the cumulative $1.5m may be transferred to another component of equity such as retained earnings. Recycling applies only to debt instruments at FVTOCI.

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