An investment in a debt security is transferred from one category to another. IFRS require that...

An investment in a debt security is transferred from one category to another. IFRS require that for this particular reclassification: (1) the security be transferred at fair value at the date of transfer; and (2) the accumulated FV gains or losses at the date of transfer currently carried as a separate component of stockholders' equity be amortized over the remaining life of the security. What type of transfer is being described?

A. Transfer from FVTPL to FVTOCI.
B. Transfer from FVTOCI to FVTPL.
C. Transfer from amortized cost to FVTOCI.
D. Transfer from FVTOCI to amortized cost.

Expert Solution

Answer to the question is Option B:- Transfer from FVTOCI to FVTPL.

When debt instruments are subsequently measured at FVTOCI, any changes in fair value should be recognised at OCI except for certain cases. Assets are classified at fair value under FVTOCI.

Like FVTOCI, assets are classifed at fair value under FCTPL also. Under FVTPL, Gain or losses arises as a result of change in fair value at the time of reclassification are recognised in Profit and loss account and are not kept as a seperate component of Stockholder's Equity.

On the basis of above, it can be said that as per IFRS, transfer of debt instrument from FVTOCI to FVTPL, both the following criteria gets fulfilled:

a. the security be transferred at fair value at the date of transfer; and

b. the accumulated FV gains or losses at the date of transfer currently carried as a separate component of stockholders' equity be amortized over the remaining life of the security.

ekkarill92 answered 2 years ago

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