Confirming my understanding for debt classified as AFS (under old IFRS standards)

Dear all,

Suppose there is a 5 year 6%bond bought at discount @ 46.7 (face value of bond is 100). YTM @ issuance is 7%.

If the bond is classified as Held to Maturity (“HTM”), then the amortized cost for the tenor of the bond will be:-

Year 0: 46.7

Year 1: 55.97

Year 2: 65.88

Year 3: 76.50

Year 4: 87.85

Year 5: 100

Fair values (hypothetically) of the bond are as followed:

Year 0: 46.7

Year 1: 60

Year 2: 70

Year 3: 80

If the bond is reported as Available-For-Sales (“AFS”),

In Year 1, there will be an unrealized gain of 60-55.97=4.03 which go to OCI under Shareholders Equity. The bond will be reported @ fair value of 60 on the balance sheet. _ Am I right for this portion? _

In Year 2, there will be an additional unrealized gain of 70- 60=10 which go to OCI. The unrealized gain is now 14.03 in the OCI under Shareholders Equity. The bond is reported @ fair value of 70 on the balance sheet. _ Am I right for this portion? _

One day after end of Year 2 (i.e. 1st Jan of Year 3), the bond is sold for 110. The unrealized gain of 14.03 will be taken out of the OCI under Shareholders Equity. The realized gain recongised in the P&L will consist of:-

  • unrealized gain of 14.03 now realized and
  • realized gain of 110- 70 = 40.

_ Am I right? _

Thank you.


anyone to share?

IAS 39.55b

“A gain or loss on an available-for-sale financial asset shall be recognised in other comprehensive income, except for impairment losses (see paragraphs 67–70) and foreign exchange gains and losses (see Appendix A paragraph AG83), until the financial asset is derecognised. At that time the cumulative gain or loss previously recognised in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment (see IAS 1 Presentation of Financial Statements (as revised in 2007)). However, interest calculated using the effective interest method (see paragraph 9) is recognised in profit or loss (see IAS 18). Dividends on an available-for-sale equity instrument are recognised in profit or loss when the entity’s right to receive payment is established (see IAS 18).”

in short, you’re correct.

Looks good to me.

Thanks both CADFX and S2000magician for the confirmation.