Loans and receivables

Loans and receivables are by definition under IFRS 39 9 non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than:

  • that the entity intends to sell immediately or in the near term, which are classified as held-for-trading;
  • that the entity on initial recognition designates as at fair value through profit or loss (see fair value option);
  • that the entity on initial recognition designates as available-for-sale; or
  • for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration, which are classified as available-for-sale.

This category includes purchased loans and receivables, and may include debt securities that are not quoted in an active market. [IAS 39 9, IAS 39 BC28]

The classification of financial instruments as loans and receivables is not appropriate if an entity intends to sell the instruments immediately or in the near term. [IAS 39 9]

Loans and receivables shall be measured upon initial recognition at fair value plus transactions costs that are directly attributable to the acquisition of the loans and receivables. After initial recognition, an entity shall measure loans and receivables at amortized cost using the effective interest method.

Impairment loss calculations

Loans and receivables and held-to-maturity investments
An ‘impairment loss’ for financial assets measured at amortised cost is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate, and is recognised in profit or loss in that reporting period.

The ‘estimated future cash flows’ include only those credit losses that have been incurred at the time of the impairment loss calculation – i.e. an ‘incurred loss model’. Losses expected as a result of future events, no matter how likely, are not taken into account. [IAS 39 59, IAS 39 63]

Reversals of impairment losses

Loans and receivables and held-to-maturity investments
If, after an impairment loss has been recognised in respect of loans and receivables or held-to-maturity investments, the amount of any previous impairment loss decreases due to an event occurring subsequent to the loss recognition, then the previously recognised impairment loss is reversed through profit or loss. The reversal is limited to an amount that does not state the asset at more than what its amortised cost would have been in the absence of impairment. [IAS 39 65]

Disclosures required for loans and receivables and financial liabilities that an entity has elected to measure at fair value through profit or loss include the nature of instruments and how the entity has satisfied the conditions for such election.

For loans and receivables designated at fair value through profit or loss, an entity discloses the maximum exposure to credit risk and the amount by which this risk is mitigated by credit derivatives or similar instruments, the change in the fair value of the loan or receivable attributable to credit risk (cumulatively and for the period), and from the date of designation the change in the fair value of any related credit derivatives or similar instruments (cumulatively and for the period). [IFRS 7 9, IFRS 7 B5]

Example accounting policies:

Loans and receivables (Siemens Annual Report 2018)

Financial assets classified as loans and receivables are measured at amortized cost using the effective interest method less any impairment losses. Impairment losses on trade and other receivables are recognized using separate allowance accounts. The allowance for credit risks involves significant management judgment and review of individual receivables based on individual customer creditworthiness and current economic trends.

Generally, valuation allowances are based on customer ratings provided by SFS, which are centrally determined based on customer information as well as information from external rating agencies. The customer ratings also consider the country-specific component of country credit ratings. As of September 30, 2018 and 2017, Siemens recorded a valuation allowance for trade and other receivables (including leases) of € 1,176 million and € 1,391 million, respectively.

Loans and receivables (Ahold Delhaize Annual Report 2018)
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortized cost using the effective interest method, less any impairment losses. They are included in current assets, except for loans and receivables with maturities greater than 12 months after the balance sheet date.

Loans and receivables

Loans and receivables

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