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

Property development (intercompany) finance

Interest bearing term loan – Senior interest-bearing bank term debt

THE CASE

Parent C operates in the UK real estate sector and purchases land for development into residential units for public sale. Each potential development proposal is supported by a detailed business case which includes a due diligence report in respect of the expected Gross Development Costs (GDC) as well as an independent third party valuation of the Gross Development Value (GDV) of the completed site both of which are undertaken in order to secure bank financing. Management assesses each proposal in accordance with a number of key investment criteria, including for example, the minimum yield required on each development.

Once the proposal has been approved by Management, a new … Read more

Classification of financial assets

IFRS 9 presents three principal measurement categories for financial assets:

A financial asset is classified into a measurement category at inception and is reclassified only in rare circumstances.

The assessment as to how an asset should be classified is made on the basis of both the entity’s business model for managing the financial asset (see the business model tests) and the contractual cash flow characteristics of the financial asset (the SPPI tests, see Solely Payments of Read more

Classification for investments in bonds

Under IFRS 9, bonds should be classified and measured based on an entity’s business model for managing the bonds and their contractual cash flow characteristics (SPPI Test) (see table below). The business model refers to how an entity manages bonds in order to generate cash flows—either by collecting contractual cash flows, selling the bonds or both. An entity is also required to determine whether the bond’s contractual cash flows are “Solely Payments of Principal and Interest” (SPPI) on the principal amount outstanding.

The entity must assess its business model by looking at several factors, including the expected frequency, volume and timing of asset sales, the measurement of financial asset performance, the management of investment … Read more

Realised cash flows differ from expectations

If cash flows are realised in a way that is different from the expectations at the date on which the entity assessed the business model – e.g. if more or fewer financial assets are sold than was expected when the assets were classified – then this does not:

  • give rise to a prior-period error in the entity’s financial statements; or Realised cash flows differ from expectations
  • change the classification of the remaining financial assets held in that business model – i.e. those assets that the entity recognised in prior periods and still holds,

as long as the entity considered all relevant and objective information that was available when it made the business model assessment. [IFRS 9 B4.1.2ARead more

Instruments with certain par prepayment features

Or debt instruments with prepayment features that give rise to compensation being paid to the party triggering the possibility to be measured at amortised cost or fair value through other comprehensive income (FVOCI) in certain circumstances. Instruments with certain par prepayment features

If a financial asset would otherwise meet the SPPI test, but fails to do so only as a result of a contractual term that permits or requires prepayment before maturity, or permits or requires the holder to put the instrument back to the issuer, then the asset can be measured at amortised cost or FVOCI if:

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