1 Financial fixed assets at fair value through profit or loss

Financial fixed assets at fair value through profit or loss

Financial fixed assets at fair value through profit or loss is part of the decision model for the classification and measurement of financial assets, that started in the IFRS 9 Framework for financial assets. But you can also read it without doing the test …. off course? Financial fixed assets at fair value through profit or lossFinancial fixed assets at fair value through profit or loss

This is the classification arrived at. Financial fixed assets at fair value through profit or loss

Category classification criteria Financial fixed assets at fair value through profit or loss

  • Financial assets that do not meet the amortised cost criteria (business model test and SPPI test)
  • Financial assets that are derivatives Financial fixed assets at fair value through profit or loss
  • Equity instruments held for trading
  • Financial assets designated at initial recognition at fair value through profit or loss (the fair value option). The option to designate is available: –If doing so eliminates, or significantly reduces, a measurement or recognition inconsistency (i.e. ‘accounting mismatch’). Note: the option to designate is irrevocable. Financial fixed assets at fair value through profit or lossFinancial fixed assets at fair value through profit or loss

Subsequent measurement Financial fixed assets at fair value through profit or loss

  • Fair value, with all gains and losses recognised in profit or loss. Financial fixed assets at fair value through profit or loss

Fair value through profit or loss means that at each balance sheet date the financial asset is re-measured to fair value and any movement from balance sheet date to balance sheet date in that fair value is taken directly to profit or loss in the income statement. Financial fixed assets at fair value through profit or loss

This is the remaining classification and measurement application (the others amortised costs and fair value through other comprehensive income are strictly defined), if the business model is not that of ‘hold to collect’ or ‘hold to collect and sell’ or the SPPI test is not passed, the financial asset is accounted for at FVPL. Financial fixed assets at fair value through profit or loss

In addition, a portfolio of financial assets that is managed and whose performance is evaluated on a fair value basis is neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets. The entity is primarily focused on fair value information, and it uses that information to assess the assets’ performance and to make decisions. Such portfolios must be measured at FVPL. [IFRS 9 B4.1.6]. Financial fixed assets at fair value through profit or loss

Illustrating the application of the Business Model and SPPI tests: Financial fixed assets at fair value through profit or loss

Amortized Cost or FVOCI possible

FVPL mandatory

Bank deposits repayable on demand, where interest, if payable, is at a fixed or floating market rate

Investments in common shares where the holder does not designate the asset as FVOCI

Trade receivables requiring payment only of fixed amounts on fixed dates

Investments in mandatory redeemable preferred shares and puttable instruments (or instruments issued by entities having a limited life) such as mutual fund units where non-payment of dividends is not a breach of contract or the holder has no claim for a fixed amount in bankruptcy

Full recourse loans or investments in debt securities that require only fixed payments on fixed dates

Self-standing derivative financial assets such as purchased options, swaps and forward contracts

Full recourse floating rate loans requiring fixed payments on fixed dates of principal and bearing interest at a floating market rate (such as the BA rate) where the interest rate is for a period that is the same as the interest rate reset period (e.g., the interest rate is reset every three months based on the 3 month BA rate)

Floating rate loans where the interest rate is for a period that does not correspond to the interest reset period (e.g., interest is reset every 3 months based on the 6 month BA rate) and the impact on cash flows is significant

Non-recourse loans (i.e., those where recourse is limited to specific assets) where at initial recognition the lender has an economic exposure to the underlying asset’s value and cash flows that is consistent with a basic lending arrangement

Non-recourse loans where at initial recognition the lender has an economic exposure to the underlying asset’s value and cash flows greater than that of a basic lender

Trade receivables, loans and investments in debt securities, having the attributes described above but that can be prepaid, subject to meeting certain criteria

Fixed or floating rate loans including terms where payments are based on factors such as equity or commodity prices, unless the terms are not genuine or their effect is de minimis

Financial fixed assets at fair value through profit or loss

Financial fixed assets at fair value through profit or loss Financial fixed assets at fair value through profit or loss

Financial fixed assets at fair value through profit or loss Financial fixed assets at fair value through profit or loss

Financial fixed assets at fair value through profit or loss

Financial fixed assets at fair value through profit or loss

Financial fixed assets at fair value through profit or loss Financial fixed assets at fair value through profit or loss

FVPL mandatory FVPL mandatory FVPL mandatory FVPL mandatory