What is Equity Investments Accounting?
Equity investments are holdings in the share capital of other entities, made to earn investment returns or to influence the investee. Under IFRS 9, equity investments are measured at fair value through profit or loss (FVTPL) by default, but the entity can irrevocably elect to measure certain investments at fair value through other comprehensive income (FVOCI) on initial recognition.
How It Works
- Identify the equity investment and determine the appropriate IFRS 9 classification.
- Measure initially at fair value, including transaction costs for FVOCI and excluding them for FVTPL.
- Remeasure at fair value at each reporting date.
- Recognise dividends in profit or loss; for FVTPL, fair value changes go to P&L; for FVOCI election, they go to OCI with no recycling on disposal.
Saudi Context
Saudi corporates and investment funds frequently hold Tadawul-listed equities. CMA-supervised mutual funds report holdings at fair value at least daily, while operating companies usually apply quarterly fair value updates. ZATCA accepts fair value treatment for zakat base purposes with specific adjustments.
Example
A Saudi company buys 1 million shares of a Tadawul-listed company at SAR 50, classified as FVTPL. Year-end price is SAR 55. The SAR 5 million unrealised gain is recognised in profit or loss.