Reclassification of Financial Asset

Requirement for Reclassification

- An entity shall reclassify financial assets only when it changes the business model for managing the financial assets
- Where reclassification occurs, an entity shall apply the reclassification prospectively from the reclassification date; The
entity shall not restate any previously recognized gains, losses and interest
- The reclassification date is the first day of the reporting period following the change in business model that results in an
entity reclassifying financial asset (Example - change in business model for 2019 and Jan. 1, 2020 is the reclassification
date)

Exemptions from Reclassification

a. Equity investment held for trading or measured at FVPL cannot be reclassified by reason of the consequential
requirement - All equity investments cannot be reclassified
b. Equity investment measured at FVOCI by irrevocable election cannot be reclassified simply because the election is
irrevocable
c. Only debt investment can be reclassified because the change in business model applies appropriately to debt investment
- However, debt investment measured at FVPL by irrevocable election cannot be reclassified simple because the election
is irrevocable

Reclassification from FVPL to Amortized Cost

a. The fair value at the reclassification date becomes the new carrying amount of the financial asset at amortized cost
b. The difference between the new carrying amount of the financial asset shall be amortized through profit or loss over the
remaining life of the financial asset using the effective interest method
c. A new effective interest rate must be determined based on the new carrying amount or fair value at reclassification date

Reclassification from Amortized Cost to FVPL

- The fair value is determined at reclassification date
- The difference between the previous carrying amount and fair value is recognized in profit or loss

Reclassification from Amortized Cost to FVOCI

a. The financial asset is measured at fair value at reclassification date
b. The difference between the amortized cost carrying amount and the fair value at reclassification date is recognized in
other comprehensive income
c. The original effective interest rate is not adjusted

Reclassification from FVOCI to Amortized Cost

a. The fair value at reclassification date becomes the new amortized cost carrying amount
b. The cumulative gain or loss previously recognized in other comprehensive income is eliminated and adjusted against
the fair value at reclassification date
- As a result, the investment is reverted back to amortized cost measurement
c. The original effective rate is not adjusted

Reclassification from FVPL to FVOCI

a. The financial asset continues to be measured at fair value
b. The fair value at reclassification date becomes the new carrying amount
c. A new effective interest rate must be determined based on the new carrying amount or fair value at reclassification date

Reclassification from FVOCI to FVPL

a. The financial asset continues to be measured at fair value
b. The fair value at reclassification date becomes the new carrying amount
c. The cumulative gain or loss previously recognized in other comprehensive income is reclassified to profit or loss at
reclassification date