Hi,
Request your guidance on accouting and presentation for financial instruments per IND AS / IFRS.
Company: offshore investment company
Nature of business: Investment in securities and the financial instruments are held for sale / available for sale (no hedging)
FYE: 31-Dec-2020
1-Feb-2020, security is purchased for 100 and the transaction cost of 2 which expensed directly in P&L.
31-Dec-2020, the FV is 150, so change in FV of 50 recongnised in P&L and the carrying amount of 150 (including unrealised gain) is presented in Balance Sheet.
In P&L presented as :
Change in FV of financial instruments through FVTPL
Unrealised gain: 50
Total: 50
FYE: 31-Dec-2021
1-Mar-2021, the above security sold for 90
Unrealised gain as of 31-Dec-2020 reversed / adjusted to unrealised loss as of 31-Dec-2021: 50 taken to P&L
and the realised loss on original cost of 10 also recognised in P&L
In P&L presented as :
Change in FV of financial instruments through FVTPL
Unrealised loss: 50
Realised loss: 10
Total: 60
Is the above accounting and presentation is correct?
OR
FYE: 31-Dec-2020
As the financial instruments are measured through FVTPL,
In P&L should be presented as:
Gain on change in FV of financial instruments through FVTPL: 50
FYE: 31-Dec-2021
In P&L should be presented as below for difference between the carrying amount as of Dec-20 and sale price:
Loss on change in FV of financial instruments through FVTPL: 60
And
As the company measuring the Financial Instruments through FVTPL, do we need to separately disclose the Unrealised and realised gain / loss?
Kindly advise
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Clarification on Financial instruments measured through FVTPL
Replies (1)
Hi Saranya,
Great question on accounting for financial instruments measured at Fair Value Through Profit or Loss (FVTPL)under IND AS / IFRS! Here’s a detailed clarification for your scenario:
1. Transaction Costs on Purchase:
-
Under IND AS 109 / IFRS 9, transaction costs for financial instruments classified as FVTPL should be expensed immediately in P&L.
-
So, expensing ₹2 as transaction cost directly in P&L on purchase is correct.
2. Fair Value Changes and Presentation in P&L:
-
For FVTPL instruments, all changes in fair value (both unrealised and realised) are recognised in P&L immediately.
-
The presentation can be aggregated as a single line item (e.g., "Change in fair value of financial instruments at FVTPL") without separating realised and unrealised components.
Your 1st Scenario:
FYE 31-Dec-2020:
-
Purchased at ₹100, transaction cost ₹2 expensed.
-
FV on 31-Dec-2020 is ₹150.
-
Unrealised gain ₹50 (150 - 100).
P&L:
-
Change in FV of financial instruments through FVTPL: ₹50 gain
This is correct.
Your 2nd Scenario:
FYE 31-Dec-2021:
-
Sold at ₹90.
-
Carrying amount at 31-Dec-2020 = ₹150.
-
Loss from 150 to 90 = ₹60.
Presentation options:
-
You do not have to separately show "unrealised loss reversal" and "realised loss". The entire difference between previous carrying amount and sale proceeds can be presented as a single loss on change in fair value of financial instruments at FVTPL.
So instead of:
-
Unrealised loss: 50
-
Realised loss: 10
You can show:
-
Loss on change in FV of financial instruments through FVTPL: ₹60
Summary:
| Aspect | Practice under IND AS/IFRS |
|---|---|
| Transaction cost on purchase | Expense immediately in P&L |
| Unrealised gains/losses | Recognised in P&L immediately |
| Realised gains/losses | Recognised in P&L immediately |
| Presentation in P&L | Can present as a single aggregated line item; no need to separate realised & unrealised |
| Disclosures | Separate disclosure of realised/unrealised gains or losses is not mandatory for FVTPL instruments but may be included as per management discretion or specific disclosure requirements |
Additional Note:
If your company wants to provide detailed information, it can disclose realised and unrealised gains/losses separately in notes, but this is not required under IND AS 109/IFRS 9.
Conclusion:
Your second approach (aggregating the gains/losses) is more aligned with standard practice and simpler. So, for FY21, showing ₹60 loss as "Loss on change in FV of financial instruments at FVTPL" is correct.
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