What happens to gains and losses on passive investments measured at FVTOCI?

When passive investments are measured at fair value through other comprehensive income (FVTOCI), they are subject to specific accounting treatments regarding gains and losses.

Under this measurement model, gains and losses from equity investments are generally recognized in other comprehensive income (OCI) and not directly in profit or loss. This approach allows for the volatility of fair value changes to be reported in OCI, providing a clearer picture of the underlying earnings.

However, for debt investments measured at FVTOCI, any gains or losses that occur are accumulated in OCI during the holding period. When such investments are sold, the accumulated gain or loss is then reclassified from OCI to profit or loss. This treatment acknowledges the realization of the gain or loss upon the actual transference of the asset rather than during the holding period.

This classification highlights the different accounting treatment for debt versus equity investments when observed under FVTOCI, which is essential for understanding the impact on financial statements.