busterbluth

This was a total slip-up on my part--I missed the "If no previous write downs were made" part. With that said, it's obvious that the $2 loss has not been recorded and thus the $2 must be charged to the I/S immediately because it's a Trading Security. Thanks for everyone's help on this.

Just an interesting note on this question: if the reclassification was made from portfolio A to B (AFS to trading), wouldn't the answer still be a $2 charge to I/S?

As for the reclassification Q in general, I believe that IFRS is very strict about Trading securities (or designated at fair value securities)--nothing can be classified to or out of Trading. However, Held to Maturity and AFS can be reclassified between each other. US GAAP pretty much permits all reclassifications. This is in Reading 21.