For equity instruments, which is true about classification under impairment approaches?

For equity instruments, which is true about classification under impairment approaches?

• A. Equity instruments can only be FVTPL
• B. Equity instruments may be FVTPL or FVOCI with limited recycling
• C. Equity instruments are measured at cost only
• D. Equity instruments are always measured at fair value through OCI

Answer: (B)

Equity investments have two allowed classification and measurement options under IFRS 9: fair value through profit or loss (FVTPL) or fair value through other comprehensive income (FVOCI). Impairment modeling as used for some debt instruments does not apply to equity investments in the same way. If you designate an equity instrument at FVTPL, all changes in fair value go through the income statement. If you designate it at FVOCI, changes in fair value go to other comprehensive income, and on disposal there isn’t recycling of those OCI gains/losses back to the profit or loss for equity (that limited recycling distinction is why this option is described the way it is). This flexibility—two valid measurement bases for equity—is why the statement that equity instruments may be FVTPL or FVOCI with limited recycling is the best description.

Equity investments have two allowed classification and measurement options under IFRS 9: fair value through profit or loss (FVTPL) or fair value through other comprehensive income (FVOCI). Impairment modeling as used for some debt instruments does not apply to equity investments in the same way. If you designate an equity instrument at FVTPL, all changes in fair value go through the income statement. If you designate it at FVOCI, changes in fair value go to other comprehensive income, and on disposal there isn’t recycling of those OCI gains/losses back to the profit or loss for equity (that limited recycling distinction is why this option is described the way it is). This flexibility—two valid measurement bases for equity—is why the statement that equity instruments may be FVTPL or FVOCI with limited recycling is the best description.