Questions:
What is the difference and relationship between FRS 102 and IFRS 9?

Beto purchased equity shares in another company on May 1st 2022. At the date of acquisition, the investment cost was $11,000 and transaction costs were $2,000. At the reporting date, the shares had a fair value of $13,000.

Beto's finance director has informed the financial accountant that it plans to hold the shares for the long term and therefore wishes to use the alternative treatment in line with IFRS 9 Financial Instruments. The financial accountant has only recently joined the company, having previously worked for a company that applies FRS 102, and is therefore unsure what the finance director is referring to.

What is the treatment of the investment in equity shares differs under IFRS 9 and FRS 102 for the year ended December 31st 2022?

Reference answers:
FRS 102 provides a baseline for accounting for financial instruments in the UK, and companies can choose to adopt the more advanced IFRS 9 standard for recognition and measurement. As Per IFRS 9 Financial Instruments, investments in equity shares can be classified as fair value through profit or loss, which is the default position, or fair value through other comprehensive income (FVOCI) if an election is made upon initial recognition.

IFRS 9 and FRS 102 are both accounting standards that deal with financial instruments, but they have some key differences:
- Scope: IFRS 9 is a comprehensive standard that applies to all entities that prepare financial statements under IFRS. FRS 102, on the other hand, is a UK-specific standard that applies to most companies in the UK and Ireland. However, FRS 102 allows companies to voluntarily adopt the recognition and measurement requirements of IFRS 9 for financial instruments.
- Measurement: IFRS 9 introduces a new expected loss impairment model, while FRS 102 retains the incurred loss model from the previous standard, IAS 39.
- Hedging: Both standards have similar hedging requirements, but there are some minor technical differences.

If Beto wishes to designate these shares as FVOCI, then initially the shares should be recognized at fair value plus transaction costs, totaling $13,000 ($11,000 + $2,000).
On 31 December 2022, the shares should be measured to the fair value of $13,000, with a gain of $2,000 being recognized in other comprehensive income. As Per FRS 102, the treatment is simplified. Investments in shares should be measured at fair value through profit or loss if their fair value can be reliably measured. There is no alternative FVOCI classification.
Assuming the fair value of these shares is a reliable measurement, the shares should initially be recognized at their fair value of $11,000. The $2,000 transaction costs should be expensed.