Hello,
I tried my best to search and find a thread that specifically answers this topic, but could not find one, hence the new thread. If there is one out there, my apologies and I will be happy to review the link.
Question relates to how unrealized gains will be reported on the income statement when debt held as AFS is reclassified as HFT. IFRS seems to be silent on the matter, but per the CFAI curriculum, US GAAP states, "If a security is reclassified as held for trading, the unrealized gains or losses are recognized immediately in profit and loss.
[question removed by moderator]
I would argue the answer to be (b) because cumulative would mean 5,000 unrealized gains at fy end 2010 and 3,000 for fy end 2011 = 8,000
But the answer is ©, with the following explanation: When securities are classified as held for trading, unrealized gains and losses are included in income. During 2011 there was an unrealized gain of €3,000 on Company X.
Any thoughts? As I typed through this, I thought maybe it has something to do with the timing of the reclassification, which is unclear in the question. If it had been treated as HFT from the start, then yes, earnings would be 3,000 higher in 2011, compared to 2010, since the unrealized gains of 2010 would have been counted in 2010. But if the reclassification happened in 2011, then it should be the cumulative amount of 2010 and 2011?
Thank you.