How are unrealized gains handled under ASPE 3856 for passive investments?

Under ASPE 3856, which deals with the accounting for financial instruments, unrealized gains for passive investments are indeed recognized in profit and loss. This means that any increase in the fair value of a passive investment, such as common shares, is recorded in the income statement during the period in which the change occurs.

This approach reflects the principle of recognizing financial performance in the period it occurs, providing users of financial statements with up-to-date and relevant information regarding the entity's financial situation. By recognizing these gains immediately in the profit and loss statement, stakeholders can gain insight into the performance of investments without the delays associated with waiting for them to be realized through a sale.

In contrast, other accounting frameworks, such as IFRS, might allow unrealized gains to be recorded in other comprehensive income (OCI) under certain conditions, which wouldn't apply in this case under ASPE. Understanding this distinction is essential for proper financial reporting under ASPE guidelines.