Make the election when the instrument is first recognised
Ind AS 109 paragraph 5.7.5 permits an irrevocable election for eligible equity investments in its scope. Apply the issuer-side equity definition in Ind AS 32 and check whether another standard governs the holding. For example, interests in subsidiaries, associates or joint ventures accounted for under the relevant consolidation, separate financial statement or equity method requirements are outside this election. Assess eligibility instrument by instrument. It excludes instruments held for trading and contingent consideration recognised by an acquirer in a business combination to which Ind AS 103 applies. Document the scope and decision on initial recognition; a portfolio label or later change in intent is insufficient. Initially measure the elected investment at fair value plus directly attributable transaction costs under paragraph 5.1.1.
Read the applicable text: MCA Ind AS 109: paragraphs 5.1.1, 5.7.1A, 5.7.5–6 and B5.7.1–3; MCA Ind AS 107: paragraphs 11A–11B before the 2026 amendment; Gazette text: Companies (Indian Accounting Standards) Amendment Rules, 2026, G.S.R. 725(E).
Keep fair value, dividends and equity transfers separate
Under B5.7.1, fair-value changes go to other comprehensive income (OCI) and are not reclassified to profit or loss, including on disposal. The entity may transfer accumulated gains or losses within equity. Recognise qualifying dividends in profit or loss under paragraphs 5.7.1A and 5.7.6 unless the dividend clearly recovers part of the investment cost, as explained in B5.7.1. For dividend income, the right to receive payment must be established, inflow must be probable, and the amount must be reliably measurable. Review the distribution terms to identify any clear recovery of investment cost, and reconcile it separately to the investment and fair-value movement. Paragraph B5.7.3 includes related foreign exchange effects in the OCI movement for these non-monetary equity investments.
Prove the reserve movement at disposal
Measure the investment through the disposal date and reconcile the final fair-value movement before derecognition. In a partial disposal, identify the units derecognised and retained, and support the cumulative OCI attributable to each. The illustration below assumes identical units with a common original carrying amount per unit. Do not use a debt FVOCI recycling entry as a template: paragraph 5.7.10 concerns a different category. Keep tax basis and tax presentation in separate workpapers; the absence of recycling does not settle tax liability.
Prepare the designation disclosures
Ind AS 107 paragraphs 11A–11B address designation disclosures, dividends, transfers within equity and disposals. Under G.S.R. 725(E), apply the amended disclosures for annual periods beginning on or after 1 April 2026 (Ind AS 107 paragraph 44LL and Ind AS 109 paragraph 7.1.12); the new disclosures are not required for periods presented before initial application. For each class, identify designated investments and reasons for designation, report year-end fair value, and distinguish dividends and current-period OCI gains or losses on derecognised holdings from those on investments still held. Disclose any cumulative transfers within equity and why they were made. For disposals, reconcile the reasons for sale, fair value at derecognition, cumulative gain or loss, and any within-equity transfer during the reporting period relating to those disposals. Use the earlier version of paragraphs 11A–11B for earlier periods.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: First remeasurement
An elected investment begins at ₹50 lakh and ends at ₹62 lakh. Ignoring tax and costs, ₹12 lakh goes to OCI and the asset is ₹62 lakh.
Illustrative example 2: Sale below last close
Cost was ₹40 lakh; last close ₹54 lakh; sale-date fair value and proceeds ₹51 lakh. Current OCI loss is ₹3 lakh and cumulative gain ₹11 lakh. There is no recycling to profit or loss.
Illustrative example 3: Optional equity transfer
An elected equity investment initially recognised at ₹25 lakh is sold at its fair value of ₹19 lakh. The cumulative ₹6 lakh loss may be moved within equity. That transfer changes total equity by nil and does not affect profit or loss.
Illustrative example 4: Ordinary dividend
An elected position falls from ₹30 lakh to an ex-dividend fair value of ₹28 lakh at year end. The separate ₹1.50 lakh ordinary dividend meets the income recognition criteria and does not recover cost. Before tax, recognise ₹2 lakh OCI loss and ₹1.50 lakh dividend income, a combined effect of negative ₹0.50 lakh.
Illustrative example 5: Partial sale
A homogeneous elected position cost ₹80 lakh and is worth ₹100 lakh at sale. A quarter is sold at ₹25 lakh. The sold units carry ₹5 lakh cumulative gain and the retained units ₹15 lakh, before tax; no gain is recycled.
Illustrative example 6: Foreign equity
A holding initially worth USD 10,000 at ₹80/USD is worth USD 11,000 at ₹83/USD on closing. The rupee fair-value movement is ₹1,13,000, presented in OCI under the election, including the currency effect.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Verify the legal instrument | Terms and scope analysis under applicable standards. |
| 2 | Screen exclusions | Trading purpose and business-combination consideration. |
| 3 | Capture initial election | Dated instrument-specific approval and accounting record. |
| 4 | Reconcile fair values | Quantity, valuation inputs, dates and source rates. |
| 5 | Review distributions | Right to receive, reliable amount and nature of the payment. |
| 6 | Measure through sale date | Disposal agreement, proceeds and supported fair value. |
| 7 | Match reserve to units | Cumulative OCI by sold and retained instrument. |
| 8 | Approve equity transfers | Policy, journal and statement of changes in equity. |
| 9 | Prepare notes | Ind AS 107 designation and disposal schedules. |
| 10 | Review tax separately | Tax-basis and deferred-tax workpapers, as applicable. |
Sixteen practitioner FAQs
1. Is equity FVOCI automatic for strategic holdings?
No. Eligible investments need an initial irrevocable election.
2. Can a trading share use the election?
No. A held-for-trading equity instrument is excluded.
3. Can a later Board resolution designate a previously recognised holding?
It cannot replace the initial-recognition election required by 5.7.5.
4. Can the election vary by instrument?
Yes. Document the instrument-by-instrument basis.
5. Does a later gain pass through profit on sale?
No. Cumulative OCI is not recycled.
6. Must the reserve be transferred within equity?
No. The application guidance permits the transfer.
7. Does the transfer itself change total equity?
No. It moves a balance within equity.
8. Is every distribution dividend income?
Review whether it clearly recovers part of cost; apply the recognition criteria to dividends.
9. What if a declared dividend is unpaid at closing?
Apply the dividend recognition criteria rather than waiting automatically for cash.
10. Does currency movement on these shares go to profit or loss?
The related exchange component is included in OCI under B5.7.3.
11. Should the debt FVOCI sales template be used?
No. Debt FVOCI has different reclassification treatment.
12. How should a partial disposal be documented?
Identify sold units and reconcile cumulative OCI for sold and retained lots.
13. Can a cost figure replace fair value indefinitely?
No. Apply the fair-value requirements and support the valuation on each relevant date.
14. What should the disposal note explain?
Apply paragraph 11B: disposal reasons, fair value at derecognition, cumulative gain or loss, and, when the 2026 amendments apply, any transfers within equity during the period for the derecognised investments.
15. Does no recycling mean no tax?
No. Apply the tax law separately.
16. Can separate ledgers for fair value and cash distributions help?
Yes. They make OCI, dividend recognition and the disposal reconciliation traceable.