Accounting Treatment of Reclassification of a Financial Asset Under Ind AS 109
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- 2 Min Read
- By Taxmann
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- Last Updated on 3 February, 2024
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A company recognises its bonds at fair value under Fair Value through Other Comprehensive Income (FVOCI) model. During the year-end, due to a change in the business model, the company reclassifies the bonds at the Amortised cost model because the company no longer hold the bond for sale and keeps collecting the contractual cash flows only. The accountant has reclassified the bond from the FVOCI model to the Amortization model at the carrying amount and has transferred the balance of OCI reserve to the Statement of Profit and Loss.
However, para 5.6.5 of Ind AS 109, states if an entity reclassifies a financial asset out of the fair value through another comprehensive income measurement category and into the amortised cost measurement category, the financial asset is reclassified at its fair value at the reclassification date. However, the cumulative gain or loss previously recognised in other comprehensive income is removed from equity and adjusted against the fair value of the financial asset at the reclassification date. As a result, the financial asset is measured at the reclassification date as if it had always been measured at amortised cost. This adjustment affects other comprehensive income but does not affect profit or loss and therefore is not a reclassification adjustment (see Ind AS 1 Presentation of Financial Statements).
This case study discusses the correct accounting treatment of reclassification of a financial asset from FVOCI model to the Amortization model under Ind AS 109.
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