Hi,
How come they include the unrecognized gains of available for sales securities in Net Income. They are available-for-sale and shouldnt unrecognized gains be include in OCI ??
Thanks !
Is it the 2nd question? If so, they were designated at fair value, that’s why the unrealized gains got included in NI.
But available for sales are always designated at fair value ?!?!?
Also UNREALIZED gain on available for sales securities go in OCI …
Dont get it …
You are right - available-for-sale equities are designated at fair value through OCI. I think in the question they failed to mention “designated at fair value through profit or loss”…
Anyone ?
The questions asks: “If at acquisition, all of the equity securities that were eligible to be designated as investments at fair value were so designated…” - Designated at fair value is treated just like trading-securities, reported on B/S at fair value. Unrealized gains/losses are recognized on the income statement, dividends/interest income go on the income statement, as well.
Available for sale is a separate classification from Designated at Fair Value. Look at the table on page 114 of the CFAI FRA book, particularly next to the “Current Financial Reporting (Prior to IFRS 9)” part.
The question is a hypothetical scenario… read this portion of the provided answer: “Only the equity securities that were designated as available for sale (Barker and Cosmic) could have been designated at fair value , and the unrecognized gains from those securities would then be included in income.”
But I thought that at acquisition, available for sales securities were already at fair value.
“Designated at fair value” is a different classification than “Available for Sale.” The question asks, hypothetically , what the impact would be if the securities that were eligible at acquisition to be classified as “Designated at Fair Value” instead of “Available for Sale.” The difference is, prior to IFRS 9, securities classified as “Designated at Fair Value” are treated like HFT securities in that the unrealized AND realized gains go through the I/S, whereas with “Available for Sale” securities, the unrealized gains go through OCI, and realized gains go through the I/S.
If I understand, those terms are all the samething.
Held for trading = Fair value through profit or loss = Designated as fair value
Held for trading = U.S. GAAP =
Fair Value Through Profit or Loss = IFRS (treated the same as HFT)
Designated at Fair Value = IFRS Only - Prior to IFRS 9 - management has the option to report financial assets that would otherwise be classified as HTM of AFS at fair value, and is treated just like FVPL/HFT with regards to unrealized and realized gains.
Yo, I’m glad I’m not taking L2 this June.
I wish I was in the same boat that you are… studying for this exam, as you are well aware, has been absolute hell.
Not sure Level 3 is easier … I’ve seen folks not passing it.
Isn’t reclassification into and out of the fair value category restricted under IFRS? And I’m not referring to IFRS 9- because it’s definitely prohibited under the new standard.