Beruflich Dokumente
Kultur Dokumente
Financial Instruments
Part II: Classification and measurement
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Agenda
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Classification
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Classification
Financial assets
Step 1
Business
model = hold
to collect
Business
model = hold
to collect and
sell
Other
business
models
Amortised
cost
FVOCI*
FVTPL
Other types of
cash flows
FVTPL
FVTPL
FVTPL
Step 2
*Excludes investments in equity instruments. An entity can elect to present FV changes in OCI.
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Residual
category
Fair value
option
Designated at initial
recognition eliminates or reduces
accounting mismatch
If a financial asset
does not fit in another
category it is
automatically FVTPL
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Instrument F
A bond that is convertible into a fixed number of equity instruments of the
issuer.
Instrument G
A loan that pays an inverse floating interest rate (ie the interest rate has an
inverse relationship to market interest rates).
Instrument H
A perpetual instrument but the issuer may call the instrument at any point
and pay the holder the par amount plus accrued interest due.
The instrument pays market interest rate but payment of interest cannot be
made unless the issuer is able to remain solvent immediately afterwards.
Deferred interest does not accrue additional interest.
Refer to paragraph B4.1.14 of IFRS 9 Financial
Instruments
*
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Both collecting
contractual cash
flows and selling
financial assets
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Other business
models
Both collecting
contractual cash flows
and selling sale
integral to achieving
the objective of the
business model
Typically involve
greater frequency and
value of sales
Collection of
contractual cash flows
is incidental to the
objective of the model
Measurement:
amortised cost
Measurement: FVOCI
Measurement: FVTPL
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Originates
loan
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Customers
Payment of contractual
cash flows
Sells loan
Transfer of
contractual cash
flows
Controls consolidate
Securitisation
vehicle
Issues instrument
Investors
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Classification
Financial liabilities
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2. Amortised cost
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Definition of derivative
Value
changes in
response to
the change in
the underlying
Requires little
or no initial
net
investment
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Settled at a
future date
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Type of contract
Interest rates
Currency rates
Commodity swap
Commodity prices
Equity swap
Interest rates
Interest rates
Currency futures
Currency rates
Currency forward
Currency rates
Commodity forward
Commodity prices
Equity forward
Embedded derivatives
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Does the hybrid contract contain a host that is an asset within the scope of IFRS 9?
Yes
Apply the requirements for
classification of financial
assets in IFRS 9 to the
entire hybrid contract
No
Separate embedded derivative from host and account for
as a derivative under IFRS 9 if the following three
conditions are satisfied:
economic
characteristics
and risks of the
embedded
derivative are not
closely related to
the economic
characteristics
and risks of the
host
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a separate
instrument with
the same terms
as the
embedded
derivative would
meet the
definition of a
derivative
the hybrid
contract is not
measured at
FVTPL (ie a
derivative that
is embedded in
a financial
liability at
FVTPL is not
separated)
Reclassification
Conditions
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Financial assets
When, and only when, an entity changes
its business model for managing financial
assets expected to be very infrequent
Financial liabilities
An entity shall not reclassify any financial
liability
Reclassification shall be applied prospectively from the reclassification date.
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Measurement
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Adjusted for
transaction Costs
Initial
carrying
amount
Initial
carrying
amount
Fair value
Initial
carrying
amount
Asset or Liability
Asset
Liability
Measured at
FVTPL
Measured
at other
than FVTPL
Measured
at other
than FVTPL
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Best evidence of the fair value of a financial instrument at initial recognition is normally
the transaction price.
If fair value at initial recognition differs from transaction price:
If fair value is evidenced by a quoted price in an active market for an identical asset or
liability or based on valuation technique that uses only data from observable markets
Recognise the difference between the fair value at initial recognition and the
transaction price as a gain or loss
In all other cases:
o At initial recognition: defer the difference
o After initial recognition: recognise that deferred difference as a gain or loss only to
the extent that it arises from a change in a factor that market participants would take
into account
If part of the consideration might not be for the financial instrument itself, eg
Interest free loan to a subsidiary
Providing below-market interest rate loan for rebates or minimum purchase volume
regarding other items
o In the cases above, an entity measures the fair value of the financial instruments
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Profit or loss
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Other
Comprehensiv
e Income
Nil
Foreign exchange gains
& losses
Gain or loss on
derecognition
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Statement
of
financial
position
Fair value
Profit or loss
Interest revenue
using effective
interest method
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Other
Comprehensiv
e Income
Fair value change
other than those
recognised in profit
or loss
Impairment
Foreign exchange
gains & losses
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(amounts
accumulated are
recycled to P&L
upon derecognition)
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CU1,000
Cash
CU1,000
Credit
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Debit
Impairment loss (P&L)
CU30
CU20
Credit
CU50
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1 January 20X1: the entity sells the debt instrument for CU950, which is its FV
at that date.
Debit
Credit
Cash
CU950
Financial assetFVOCI
Loss (profit or loss)
CU950
CU20
CU20
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Statement
of financial
position
Profit or
loss
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Other
Comprehensive
Income
Changes in fair value
and foreign exchange
component
Fair Value
Dividends
(amounts accumulated
never reclassified to P&L
may be transferred
within equity)
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Profit or loss
Other
Comprehensiv
e Income
Changes in
Fair value
Fair value
Nil
Gain or los
on
derecognition
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Dividends
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Significant change in the market for the investees equity or its products or potential products.
Significant change in the global economy or the economic environment in which the investee
operates.
Significant change in the performance of comparable entities, or in the valuations implied by
the overall market.
Internal matters of the investee, eg commercial disputes, litigation, changes in management or
strategy.
Evidence from external transactions in the investees equity, either by the investee (such as a fresh
issue of equity), or by transfers of equity instruments between third parties.
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Measurement
Financial liabilities
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SUBSEQUENT MEASUREMENT
It depends:
- amortised cost using the effective interest method;
- fair value through profit or loss: derivatives, liabilities accounted for under the fair value option
and other financial liabilities
*Fair value is defined as follows: The price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement
date. (IFRS 13, Appendix A)
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P&L
Full FV
all FV
except own credit
FV
due to own credit*
Own credit = FV changes in the liability arising from changes in the risk that the
issuer will fail to perform on that particular liability
Otherwise, P&L gain when own credit deteriorates, loss when it improves
Required by IFRS 9 for liabilities under the FVO
IFRS 9 allows the own credit requirements to be early applied before
the rest of IFRS 9
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Amortised cost
Amount at
initial
recognition
Principal
repayments
+/-
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Cumulative
amortisation using
effective interest
method of any
difference
between initial
amount and
maturity amount
Gross
carrying
amount
Loss
allowance
for financial
assets
Amortis
ed cost
Effective interest method is the method that is used in the calculation of the
amortised cost of a financial asset or a financial liability and in the allocation
and recognition of the interest revenue or interest expense in profit or loss over
the relevant period.
Effective interest rate is the rate that exactly discounts estimated future cash
payments or receipts through the expected life of the financial asset or financial
liability to the gross carrying amount of a financial asset or to the amortised
cost of a financial liability.
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Reclassification to
Fair value through
profit or loss
R
ec
la
ss
ifi
ca
tio
n
fro
m
Fair value
through
profit or loss
Fair value
through OCI
Amortised
cost
Amortised cost
Continue to measure at FV
The effective interest rate is determined on the basis of the fair value
of the asset at the reclassification date
Continue to
measure at FV
Cumulative gain or
loss in OCI
reclassified to
profit or loss at
reclassification
date
Difference between
previous amortised
cost and FV
recognised in profit
or loss
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Credit
CU490,000
CU490,000
CU4,000
CU4,000
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Credit
CU490,000
CU490,000
CU4,000
Loss allowance
CU4,000
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Debit
Bonds (FVPL assets)
Credit
CU490,000
CU490,000
CU4,000
CU4,000
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CU490,000
CU490,000
CU10,000
Loss allowance
CU6,000
CU4,000
(To recognise the reclassification from FVOCI to amortised cost including the recognition of the loss
allowance deducted to determine the amortised cost amount. The measurement of expected credit
losses is however unchanged.)
(a)
The cumulative loss OCI at the reclassification date was CU4,000. That amount consists of the
total FV change of CU10,000 (ie CU500,000 490,000) offset by the accumulated impairment
amount recognised (CU6,000) while the assets were measured at FVTOCI
Refer to Example 15 in paragraph IE104 of IFRS 9
Financial Instruments
*
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Credit
CU490,000
CU500,000
CU6,000
CU4,000
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Credit
CU490,000
CU500,000
Loss allowance
CU6,000
CU4,000
(To recognise the reclassification from amortised cost to FVOCI. The measurement of
expected credit losses is however unchanged.)
(a)
For simplicity, the amount related to impairment is not shown separately. If it had been, this journal
entry (ie DR CU4,000) would be split into the following two entries: DR OCI CU10,000 (FV changes)
and CR OCI CU6,000 (accumulated impairment amount).
Refer to Example 15 in paragraph IE104 of IFRS 9
Financial Instruments
*
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