Question
Pellmont Holdings buys shares as a long-term strategic holding and, on initial recognition, makes the irrevocable IFRS 9 election to present fair value changes in other comprehensive income (FVOCI).
| Date | Event |
|---|
| January 10, 2026 | Bought 10,000 shares at $12 each and paid $1,000 of broker fees, all in cash. |
| November 30, 2026 | Received a cash dividend of $3,000. |
| December 31, 2026 | Fair value of the shares: $13.50 each. |
| June 30, 2027 | Sold all 10,000 shares for $12.80 each in cash. |
Pellmont's policy is to transfer the cumulative fair value reserve on a disposed holding to retained earnings.
Required:
- Journal Entries — every entry above. On June 30, 2027 remeasure to fair value first, then record the sale, then make the transfer. Use Equity Investments at FVOCI, Fair Value Reserve, Dividend Income, Retained Earnings and Cash.
- Profit or Loss — the total gain or loss on the shares (excluding dividends) recognised in profit or loss over 2026 and 2027.
- Statement Impact — the combined effect of the June 30, 2027 entries.
Statements in this challenge
- Journal EntriesJournal Entry
- Profit or LossNumeric Answer
- Statement ImpactStatement Impact
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IFRS 9 — Financial Instruments
Classification drives the accounting, so settle it first: amortised cost, fair value through profit or loss, or fair value through other comprehensive income. Only then decide where remeasurement gains and losses land, because the same price movement is reported in different places under different classifications.
Common mistakes
- Routing a fair value movement through profit or loss when the instrument is measured at FVOCI, or the reverse.
- Capitalising transaction costs on an instrument held at fair value through profit or loss, where they are expensed.
- Forgetting to remove the cumulative gain or loss from equity on the disposal of an FVOCI investment.
Further readingIFRS 9: measuring financial instruments