Support Ltd is an ASX listed Australian investment company On 1 July 2022 Support Ltd and Equal Bank Ltd an ASX listed for profit community bank established a public company limited by guarantee Alway

(a) Classification of the Investment:

According to AASB 9 Financial Instruments, investments in equity instruments should be classified as either FVTPL or FVTOCI. FVTPL classification is appropriate when the equity instruments are held for trading purposes, while FVTOCI classification is appropriate for equity investments that are not held for trading purposes, and where the changes in their fair value are recognized in OCI.

In the case of Support Ltd’s investment in Always There, the investment is not held for trading purposes, as Always There’s constitution states that it retains each year’s funding surplus and cannot make an annual distribution to either Support Ltd or Equal Bank Ltd. Therefore, it is appropriate to classify the investment as FVTOCI.

AASB 9.A5.4(a) states that investments in equity instruments that are not held for trading should be classified as FVTOCI if they are not designated as FVTPL. AASB 9.A5.7 states that investments in equity instruments classified as FVTOCI should be measured at fair value, with changes in fair value recognized in OCI, except for dividends, which should be recognized in profit or loss.

Additional Information:

One additional item of information that would further develop the argument for FVTOCI classification is the nature of Support Ltd’s investment in Always There. If the investment is long-term, and there is no intention to sell the investment in the near future, this would support the argument for FVTOCI classification.

(b) Subsequent Accounting Treatment and Impact on Specific Account Balances:

For Support Ltd’s consolidated financial statements, the subsequent accounting treatment for the FVTOCI investment in Always There would involve measuring the investment at fair value, with changes in fair value recognized in OCI. Dividends received from Always There would be recognized in profit or loss.

As an example, the impact on the specific account balances of Support Ltd’s consolidated financial statements at 30 June 2023 would be as follows:

1. Statement of Financial Position: The fair value of the investment in Always There would be recognized as a non-current asset on the statement of financial position. The fair value of the investment would be adjusted for any changes in fair value recognized in OCI. If the investment has increased in value, this would result in an increase in the non-current asset balance on the statement of financial position.

2. Statement of Comprehensive Income: The changes in fair value of the investment in Always There would be recognized in OCI. If the investment has decreased in value, this would result in a decrease in the OCI balance on the statement of comprehensive income. If the investment has increased in value, this would result in an increase in the OCI balance on the statement of comprehensive income.

In conclusion, the investment in Always There should be classified as FVTOCI in Support Ltd’s consolidated financial statements. The subsequent accounting treatment involves measuring the investment at fair value, with changes in fair value recognized in OCI. The impact on specific account balances would depend on the changes in fair value of the investment and the receipt of dividends