12-Month Expected Credit Losses

12-month expected credit loss is the portion of the lifetime expected credit losses that represent the expected credit losses that result from default events on a financial instrument that are possible within the 12 months after the reporting date. To get background on the impairment model introduced in IFRS 9 see ‘Impairment of financial assets‘.

Initial recognition 12-Month Expected Credit Losses

At initial recognition of a financial asset, an entity recognises, as a standard approach, a loss allowance equal to 12-month expected credit losses. The actual loss does not need to take place within the 12 month period; it is the occurrence of the default event that ultimately results in that loss. An exception is purchased … Read more

Costs to issue or buy back issued shares

The accounting rule: Costs of issuing shares or a buy back of issued shares by the issuing entity are accounted for as a deduction from equity, net of any related income tax benefit (the issue or buy back not being part of a business combination). 

An entity typically incurs various costs in issuing or acquiring its own equity instruments. Those costs might include registration and other regulatory fees, amounts paid to legal, accounting and other professional advisers, printing costs and stamp duties. The transaction costs of an equity transaction are accounted for as a deduction from equity (net of any related income tax benefit) to the extent they are incremental costs directly attributable to the equity transaction … Read more

IFRS 9 Financial Instruments Measurement

IFRS 9 uses the following criteria for determining the classification as of financial assets at Amortized Cost, FVOCI or FVPL categories apply:

The critical issues for classifying and measuring financial assets are whether:

Both of these tests have to be met in order to account for an instrument at Amortized Cost or … Read more

Equity reserves

Equity is defined as follows: The residual interest in the assets of the enterprise after deducting all of its liabilities.

Equity consists of several components such as Share capital, Treasury shares (issued shares held by the entity in a buyback), Share premium account (or Additional paid-in capital), Retained earnings and Non-controlling interest. But there is more…. Equity reserves – separated equity components

  • Translation reserve (foreign currency translation reserve), that arises from the change in FX rates from translation of foreign operating entities (in other than the consolidationEquity reserves Equity reserves Equity reserves currency) from reporting period to reporting period, When realised the result is reclassified from OCI (and translation reserve) to profit or loss,
  • Cash flow hedge reserve (hedging reserve). Hedging reserves arise
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Current and Non-current liabilities

The classification of financial liabilities into current and non-current is governed by the condition of those liabilities at balance sheet date. Current and Non-current liabilities

Where rescheduling or refinancing is at the lender’s discretion, and it occurs after the balance sheet date, it does not alter the liability’s condition at balance sheet date. Accordingly, it is regarded as a non-adjusting post balance sheet event and it is not taken into account in determining the current/non-current classification of the debt. On the other hand where refinancing or rescheduling is at the entity’s discretion and the entity can elect to roll over an obligation for at least one year after the balance sheet date, the obligation is classified as non-current, even if … Read more

IFRS 9 The Business Model Test

Under IFRS 9, a necessary condition (see IFRS 9 Classification and Measurement of Financial Instruments) for classifying a loan or receivable at Amortized Cost or FVOCI is whether the asset is part of a group or portfolio that is being managed within a business model whose objective is to collect contractual cash flows (Amortized Cost), or to both collect contractual cash flows and to sell (FVOCI). Otherwise, the asset is measured at FVPL. The key elements of this test are listed below.

Observe: IFRS 9 recommends applying the Business Model test before applying the SPPI test because this may eliminate the need to apply the more detailed SPPI test, which is applied at a more granular level.

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