IFRS 9 - Financial Asset

All topics related to IFRS Standards.
Post Reply
Feryal24
Posts: 25
Joined: 13 May 2022, 17:29

IFRS 9 - Financial Asset

Post by Feryal24 »

Good afternoon,

I have a question regarding an investment that is valued at FVOCI. The warrants will expire soon and wanted some advice on how the derecognition should be handled in accordance with IFRS 9. Can someone please confirm if my understanding is correct below:

1. remeasure the investment at the expiry date with any loss or gain recorded to OCI.
2. Derecognize the investment on the balance sheet with the corresponding gain or loss to P&L?
3. What happens to the balance in OCI? Does it just sit there or should the balance be reclassed to Retained Earnings?

Appreciate your thoughts and feedback.

Thank you
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: IFRS 9 - Financial Asset

Post by Leo »

Hi,

I'd say that if you recycle it in the P&L, it will not be sitting in OCI anymore...Furthermore, if it's an equity instrument designated as FVOCI, it can't be recycled into P&L.

In the end, you can reclassify it from OCI to retained earnings.
Feryal24
Posts: 25
Joined: 13 May 2022, 17:29

Re: IFRS 9 - Financial Asset

Post by Feryal24 »

Thank you, Leo. It is an equity instrument designated at FVOCI. So what would be the entry at derecognition?
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: IFRS 9 - Financial Asset

Post by Leo »

Cr : Equity instrument
Dr : Cash
Dr/Cr : OCI (Delta)

Dr/Cr : OCI
Dr/Cr : Retained earnings

?
Feryal24
Posts: 25
Joined: 13 May 2022, 17:29

Re: IFRS 9 - Financial Asset

Post by Feryal24 »

Thanks again. There is no cash in exchange. These warrants expired and were cashless as the exercise price was higher than the current market value. I take that the entry will be Cr Financial Asset/ Dr OCI in full ?
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: IFRS 9 - Financial Asset

Post by Leo »

yes for me
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: IFRS 9 - Financial Asset

Post by Marek Muc »

Aren't warrants derivatives and thus are classified at FVTPL mandatorily?
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: IFRS 9 - Financial Asset

Post by Leo »

I think you are right Marek, if it's a puttable, it can't be equity instrument. Hence, can't be classified as FVTOCI.

However, are there any exceptions on some specific types of warrants ?
JRSB
Trusted Expert
Posts: 1309
Joined: 01 Mar 2020, 01:10
Location: UK

Re: IFRS 9 - Financial Asset

Post by JRSB »

Interested how Feryal assessed on initial recognition that it was a FVOCI asset.
User avatar
Marek Muc
Site Admin
Posts: 3228
Joined: 15 Oct 2018, 17:21
Contact:

Re: IFRS 9 - Financial Asset

Post by Marek Muc »

Yep, it would be interesting to hear Feryal's perspective!
Post Reply