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      Question

      BankCo holds debt securities: • Portfolio A:

      Government bonds held to collect contractual interest/principal. • Portfolio B: Corporate bonds held to collect and occasionally sell to manage liquidity. • Portfolio C: Equity investments in FinTech start-up for strategic relationship. BankCo recognises ECL allowance on FVTOCI bonds. How is this presented?
      A Reduce carrying value in balance sheet. Correct Answer Incorrect Answer
      B Recognise loss allowance in OCI, no P&L impact. Correct Answer Incorrect Answer
      C Recognise loss allowance in P&L but carrying amount not reduced; cumulative OCI reserve adjusted. Correct Answer Incorrect Answer
      D Adjust cost of bonds directly. Correct Answer Incorrect Answer
      E Recognise deferred tax only. Correct Answer Incorrect Answer

      Solution

      For FVTOCI debt, ECL allowance goes to P&L. However, carrying amount isn’t reduced; instead, the loss allowance is booked in P&L and offset in OCI (fair value reserve adjusted).

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