Initial measurement: transaction costs

[From Guidance on implementing IFRS 9 Financial Instruments]

Transaction costs should be included in the initial measurement of financial assets and financial liabilities other than those at fair value through profit or loss. How should this requirement be applied in practice?

For financial assets not measured at fair value through profit or loss, transaction costs are added to the fair value at initial recognition. For financial liabilities, transaction costs are deducted from the fair value at initial recognition.

For financial instruments that are measured at amortised cost, transaction costs are subsequently included in the calculation of amortised cost using the effective interest method and, in effect, amortised through profit or loss over the life of the instrument.

For financial instruments that are measured at fair value through other comprehensive income in accordance with either paragraphs 4.1.2A and 5.7.10 or paragraphs 4.1.4 and 5.7.5 of IFRS 9, transaction costs are recognised in other comprehensive income as part of a change in fair value at the next remeasurement. If the financial asset is measured in accordance with paragraphs 4.1.2A and 5.7.10 of IFRS 9, those transaction costs are amortised to profit or loss using the effective interest method and, in effect, amortised through profit or loss over the life of the instrument.

Transaction costs expected to be incurred on transfer or disposal of a financial instrument are not included in the measurement of the financial instrument.