04 IFRS Investments

Question 1

Under what conditions does International Financial Reporting Standards (IFRS) No. 9 permit an investor to elect to report gains or losses from changes in fair value of equity investments in other comprehensive income, rather than through profit and loss (net income)?

Answer 1

If the investor does not hold an equity investment for trading purposes, the investor may elect to report changes in fair value through other comprehensive income, rather than through profit and loss (net income). The election must be made when the investment is first recognized and subsequently cannot be changed.

Question 2

Under what conditions does International Financial Reporting Standards (IFRS) No. 9 permit an investor to elect to measure a debt investment at fair value that would otherwise be measured at amortized cost?

Answer 2

An investor can elect to measure a debt investment that would otherwise be measured at amortized cost at fair value when the use of fair value would eliminate or significantly reduce a measurement or recognition inconsistency that results from an accounting mismatch. An accounting mismatch occurs when assets or liabilities, or recognizing gains or losses on them, are measured on different bases.

Question 3

What 2 conditions must be met under International Financial Reporting Standards (IFRS) No. 9 for an investment in debt to be classified as debt instruments measured at amortized cost?

Answer 3

1 Business model test - where the entity intends to hold the investment to collect the contractual cash flows, not to sell the instrument prior to its contractual maturity to realize changes in fair value;

2 Cash flow characteristic test - where the contractual terms of the investment give rise to cash flows on specific dates that are solely payments of principal and interest.

Question 4

What are the categories of investments under International Financial Reporting Standards (IFRS) No. 9?

Answer 4

Under IFRS No. 9 two categories of investments (and other financial assets) include:

1 Debt investments measured at amortized cost;

2 All other investments, including debt instruments not at amortized cost and all equity investments.