Chasing Myths: Common Misapplications of IFRS and Their Implications Myth 8 – Gains or Losses on Financial Assets at FVTPL
Conceptually and according to IFRS 9, #FVTPL means that a financial asset (or liability) is measured at fair value, and the corresponding changes in #fair value are recognized as income or expense in the profit or loss statement of the period.
Let’s consider a simple example:
The entity InvestCo acquired 10,000 shares (of another entity) listed on a stock exchange in March 2024 for a price of €54,500. These shares were classified as held for trading and, consequently, were measured at FVTPL.
On June 30, 2024, InvestCo’s reporting date, the market price of these shares was €5.67 per share. As a result, the fair value of the 10,000 shares held increased to €56,700, leading to a fair value gain of €2,200. This fair value gain was recognized as income in the profit or loss statement under the line item "Results from assets and liabilities measured at FVTPL."
On September 17, 2024, InvestCo sold the shares for €5.97 per share. Since the next reporting date for InvestCo is December 31, 2024, the carrying amount of the shares (included in the balance sheet under the line item "Financial assets at FVTPL") at the time of disposal still corresponded to the fair value determined on June 30.
How should the difference between the sale price (€59,700) and the carrying amount (€56,700) be treated?
Should it be considered:
Although there is some confusion regarding the nature of this difference, it is essential to consider that measuring a financial asset at FVTPL means that its carrying amount at any given time corresponds to its fair value.
Since the sale price of a financial asset measured at FVTPL corresponds to its fair value at the disposal date, the €3,000 difference in the example above is, in substance, a fair value adjustment. Therefore, it should be treated as a fair value gain, not as a capital gain.
Conclusion: There are no capital gains or losses when a financial asset is measured at FVTPL.