FVTOCI - Learning Question
Cow Co buys a debt instrument for $1,000.
Their business model is to hold financial assets to collect contractual cash flows and sell them when conditions are favourable.
The asset has a coupon rate of 5%, which is also the effective interest rate.
At the end of the first year, the fair value of the asset has fallen to $900; $60 of the $100 fall in value is due to 12-month expected credit losses on the asset and the remaining $40 fall is related to movements in the market value of this type of asset.
How is this accounted for?