Under IFRS 9, how are unrealized gains and losses allocated among categories?

Under IFRS 9, how are unrealized gains and losses allocated among categories?

• A. FVTPL -> Profit or loss; Amortized Cost -> NA; FVOCI -> OCI, net of tax
• B. For FVOCI, gains go to P&L
• C. Unrealized gains are not recognized until realized
• D. All unrealized gains go to OCI

Answer: (D)

Under IFRS 9, where unrealized gains and losses go depends on how the financial asset is measured. If an asset is measured at fair value through profit or loss, any changes in fair value are recognized in profit or loss as they happen. If an asset is measured at fair value through other comprehensive income, the changes go to OCI. For debt instruments in FVOCI, those gains and losses are recycled to profit or loss on disposal; for equity instruments in FVOCI, they stay in OCI with no recycling. If an asset is measured at amortized cost, there aren’t periodic unrealized gains or losses recognized in profit or loss—impairment charges (and reversals) are recognized in profit or loss as appropriate. So the blanket idea that all unrealized gains go to OCI isn’t correct; the destination depends on the asset’s measurement category.

Under IFRS 9, where unrealized gains and losses go depends on how the financial asset is measured. If an asset is measured at fair value through profit or loss, any changes in fair value are recognized in profit or loss as they happen. If an asset is measured at fair value through other comprehensive income, the changes go to OCI. For debt instruments in FVOCI, those gains and losses are recycled to profit or loss on disposal; for equity instruments in FVOCI, they stay in OCI with no recycling. If an asset is measured at amortized cost, there aren’t periodic unrealized gains or losses recognized in profit or loss—impairment charges (and reversals) are recognized in profit or loss as appropriate. So the blanket idea that all unrealized gains go to OCI isn’t correct; the destination depends on the asset’s measurement category.