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Business model assessment

A business model assessment is needed for financial assets that meet the SPPI criterion, to determine whether they meet the criteria for classification as subsequently measured at amortised cost or FVOCI. [IFRS 9 B4.1.1 ] Financial assets that do not meet the SPPI criterion are classified as at FVTPL irrespective of the business model in which they are held – except for investments in equity instruments, for which an entity may elect to present gains and losses in FVOCI. [IFRS 9 4.1.4, IFRS 9 5.7.5–6]

Consequently, determining the business model within which the financial asset is held is necessary in order to determine the appropriate classification category under IFRS 9.

A business model refers to how an entity manages its financial assets in order to generate cash flows. It is determined at a level that reflects how groups of financial assets are managed rather than at an instrument level. IFRS 9 identifies three types of business models: ‘hold to collect’, ‘hold to collect and sell’ and ‘other’. Many entities may only have one business model but it is possible to have more than one. [IFRS 9 B4.1.2A]

In order to determine which type of business model(s) an entity has, it is necessary to understand the objectives of each business model and the activities undertaken. In doing so, an entity would need to consider all relevant information including, for example, how business performance is reported to the entity’s key management personnel and how managers of the business are compensated.


The following table summarises the key features of each type of business model and the resultant measurement category.

Business modelKey featuresMeasurement category
Held-to-collect
  • The objective of the business model is to hold assets to collect contractual cash flows
  • Sales are incidental to the objective of the model
  • Typically lowest sales (in frequency and volume)
Amortised cost1
Both held-to-collect and to-sell
  • Both collecting contractual cash flows and sales are integral to achieving the objective of the business model
  • Typically more sales (in frequency and volume) than held-to-collect business model
Fair value through other comprehensive income (FVOCI)
Other bsuiness models, such as

  • trading,
  • managing assets on a fair value basis,
  • maximising cash flows through sale.
  • Business model is neither held-to-collect nor held to collect and for sale
  • Collection of contractual cash flows is incidental to the objective of the model
Fair value through profit or loss (FVPL)2

Business model assessment

Business model assessment

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