A method of measuring financial assets/ financial liabilities whereby changes in fair value (for those items measured at fair value) are recognized in the profit and loss account of an entity. In practice, financial instruments are recognized initially at fair value (including transaction costs if these assets/ liabilities are not measured at fair value through profit and loss). For a financial asset, after initial recognition, it is recognized as a financial asset at fair value through profit and loss, unless it is measured at amortized cost or at fair value through other comprehensive income (FVOCI).

For a financial liability (initially measured at fair value and subsequently at amortized cost), it is subsequently classified as a financial liability at fair value through profit or loss (FVTPL), rather than amortized cost, depending on either of the following conditions being met:

• It is held for trading (held-for-trading financial liability), or
• It is designated as being at FVTPL  by the entity (only if specified conditions are satisfied- see: designation of a liability at FVTPL).