Disclosure of deferred day 1 profits
On 1 January 2012 Company R purchases financial assets that are not traded in an active market for €15 million which represents their fair value at initial recognition. After initial recognition, R applies a valuation technique to measure the fair value of the financial assets. This valuation technique uses inputs other than data from observable markets. At initial recognition, the same valuation technique would have resulted in an amount of €14 million, which differs from fair value by €1 million. R has only one class of such financial assets with existing differences of €5 million at 1 January 2012. The disclosure in R’s 2013 financial statements would include the following: [IFRS 7.IG14]
Accounting policies
R uses the following valuation technique to measure the fair value of financial instruments that are not traded in an active market: [insert description of technique, not included in this example]. Differences may arise between the fair value at initial recognition (which, in accordance with IFRS 13 and IAS 39 (IFRS 9), is normally the transaction price) and the amount determined at initial recognition using the valuation technique. Any such differences are [description of R’s accounting policy].
In the notes to the financial statements
As discussed in note X, [insert name of valuation technique] is used to measure the fair value of the following financial instruments that are not traded in an active market. However, in accordance with IFRS 13 and IAS 39 (IFRS 9), the fair value of an instrument at inception is normally the transaction price. If the transaction price differs from the amount determined at inception using the valuation technique, that difference is [description of R’s accounting policy].
The differences yet to be recognised in profit or loss are as follows: