About Dividend Distribution affects Fair Value Adjustment of Investment in Equity Instrument IFRS 9

[hkg scheduler]

Dear Marek & Members,

While I am studying SBR and reading through the IFRS Community Notes on "Measurement of Financial Instrument IFRS 9", I would like to consult how would I account for Dividend Distributed for "Investment in Equity Instrument"? As I read that:

For Measurement of FVTPL:
"Distribution of Dividends" most often negatively impacts FV of an Asset, entities should update their FV Measurements (After Recognising Dividend Income)
Question: Should I reduce the Carrying Amount of the Financial Asset by the Dividend Income Received? So when the Equity Instrument is Disposed of, the Gains/Losses = Difference between the Sales Proceeds - this Adjusted Carrying Amount?

For Measurement of FVOCI:
If the Dividend clearly represents a Recovery of Part of the Cost of the Investment > Treat it as a "Derecognition of the Investment in Financial Asset"
Question: If it's indeed a Recovery, Should I do it similarly to the FVTPL Approach above?

Thanks very much for your answering!

Alvin

[JRSB]

I think the question really is whether the entity paying the dividend is just paying a proportion of its profit of the last year out (or less), in which case the net assets and future prospects may be unchanged (or better), whereas if a special dividend is paid out which is more akin to a return of capital, or which depletes net assets, then that is likely to have an adverse impact on the fair (or recoverable) value of an investment. If the entity had cash of 100 and equity of 100 then the investment might be ok at 100. Then it pays a dividend of 99, leaving 1 in bank and 1 in reserves, clearly that isn't worth 100 any more.

[pub_acco]

Reducing the carrying amount of an FVT* asset doesn't mean a lot because such an asset is anyway carried at fair value. If a dividend clearly is a recovery of cost, the carrying amount of the investment is first reduced by the dividend and then adjusted to fair value through PL or OCI. If the dividend is not a recovery of cost, dividend income is recognized and then the carrying amount is adjusted to fair value through PL or OCI. In the two scenarios, the carrying amount after the dividend is exactly the same and thus the accounting for the subsequent disposal won't differ.