Question

What is the fair value option? Where do companies that elect the fair value options report unrealized holding gains and losses?

Answer 1

As we know that the financial statements should reflect the true and fair view of the affairs of the company, International standards gives an option to the entities to record the financial instruments at their fair values.

Once if an entity adopts to value its financial Instruments at fair value, it cannot be revoked. However International standards will not allow to value some of the Financial assets at fair value. For Example, like investment in subsidary, financial leases etc..

The reporting of Unrealised gains or losses under fair value option should be done in Income statement.

The option of valuation of financial Instruments can be choosen on Instrument by Instrument basis and when such selection is made, entity needs to report the unrealised gain or loss on such elected item at each reporting date.However, International standards allows Financials instruments to be valued at fair value only on satisfaction of the qualifying criteria.