Under FVTPL accounting, how is a passive investment measured?

Under FVTPL accounting, how is a passive investment measured?

• A. At amortized cost
• B. At estimated future cash flows
• C. At carrying value
• D. At fair value

Answer: (D)

Under Fair Value Through Profit or Loss (FVTPL) accounting, passive investments are measured at fair value. This measurement approach reflects the current market conditions and allows for the timely recognition of changes in value, which align with the intent to trade the investment for profit as market conditions fluctuate. FVTPL accounting requires that any gains or losses arising from changes in fair value are recognized in profit or loss at the end of each reporting period. This treatment contrasts with other measurement bases, such as amortized cost or carrying value, which do not reflect the same level of market responsiveness. By focusing on fair value, this accounting method provides more relevant and timely information to investors regarding the financial performance and position of an entity’s investment portfolio. It ensures that the financial statements present a current view of the organization’s financial standing, enhancing decision-making for users of the financial reports.

Under Fair Value Through Profit or Loss (FVTPL) accounting, passive investments are measured at fair value. This measurement approach reflects the current market conditions and allows for the timely recognition of changes in value, which align with the intent to trade the investment for profit as market conditions fluctuate.

FVTPL accounting requires that any gains or losses arising from changes in fair value are recognized in profit or loss at the end of each reporting period. This treatment contrasts with other measurement bases, such as amortized cost or carrying value, which do not reflect the same level of market responsiveness.

By focusing on fair value, this accounting method provides more relevant and timely information to investors regarding the financial performance and position of an entity’s investment portfolio. It ensures that the financial statements present a current view of the organization’s financial standing, enhancing decision-making for users of the financial reports.