Accounting for investment in Mutual funds

[IFRSNOBODY]

Hi,

At my company we have recently started investing in mutual funds in USD, companies functional currency is EUR. and my co-worker is saying that that for the FV value adjustment we can record it in one line in the P/L, Net changes in assets held at FVPL. I think that we need to record 2 journals and book the currency adjustment on a different line item. Maybe it needs to be booked in OCI ?

Example: On 30 Aug the company invested 5m USD in a mutual fund, the exchange rate at the time of investment was 1,06. On 30 Sep they receive the Quarterly NAV statement from the mutual fund manager showing that the investment is now worth USD 5,2M, exchange rate at the time is 1,08. How should the adjustment be recorded ?

Option A:
EUR Debit/-Credit
Investment 97 834
Fv gain -97 834

Option B:
EUR Debit/-Credit
Investment 185 185
Fv gain -185 185
EUR Debit/-Credit
Investment -87 352
FX Loss 87 352

Is option A or B correct according to IFRS ?
Thank.

PS, I tried searching in the forum if this topic was already posted but could not find anything.

[DJP]

Hello

Option A is the correct answer in my opinion. I don't think you will find any guidance in this respect in IFRS, but given that changes in the fair value of the instrument are also due to changes in FX rates, you need to follow IFRS 9 and book the full fair value changes in P&L (definitely no OCI!). IFRS is silent about P&L geography in many cases though, but I don't see why you would show FX gains or losses separately from the rest of the instrument's fair value.

[Marek Muc]

IFRS 9.B5.7.3 implies that fx movements are part of fair value gains or losses.