IFRS 9 Proper accounting for Related Company Loans

IFRS 9 Proper accounting for Related Company Loans – IFRS 9 Financial Instruments makes no distinction between unrelated third party and related party transactions. Entities that prepare stand-alone financial statements are required to apply the full provisions of the standard to all transactions within its scope.

This means related company loan receivables must be classified and measured in accordance with the requirements of IFRS 9, including where relevant, applying the Expected Credit Loss (ECL) model for impairment. IFRS 9 Proper accounting for Related Company Loans

Applying IFRS 9 to related company loans can present a number of application challenges as they are often advanced on terms that are not arms-length or sometimes advanced on an informal basis without any terms … Read more

9 Best practical Impairment related company loans

9 Best practical Impairment related company loans – What are related company loans?

Technically not the most difficult question one would think, BUT………

Entities must first consider whether the loan is within the scope of IFRS 9 or another standard. This is because IFRS 9: 2.1(a) scopes out ‘interests in subsidiaries, associates and joint ventures’ that are accounted for in accordance with IAS 27 Separate Financial Statements or IAS 28 Investments in Associates and Joint Ventures i.e. at cost less impairment or using the equity method.

In many cases, it will be clear that the loan is a debt instrument that falls within the scope of IFRS 9 but some scenarios may require a more detailed analysis.

IFRS 9 replaced Read more

Compound financial instruments

Compound financial instruments – An incredible shift in accounting concepts

Compound financial instruments contain elements which are representative of both equity and liability classification.

A common example is a convertible bond, which typically (but not always, see ‘2 Convertible bonds‘ below) consists of a liability component in relation to a contractual arrangement to deliver cash or another financial asset) and an equity instrument (a call option granting the holder the right, for a specified period of time, Compound financial instruments to convert the bond into a fixed number of ordinary shares of the entity).

Other examples of possible compound financial instruments include instruments with rights to a fixed minimum dividend and additional discretionary dividends, and instruments with fixed dividend rights but … Read more

Individual or collective assessment for impairment

Individual or collective assessment for impairment - An entity should normally identify significant increases in credit risk and recognise lifetime ECLs

Hold to collect

The objective of the ‘hold to collect’ business model is to hold financial assets to collect their contractual cash flows, rather than to selling the assets

The IFRS 9 Framework for financial assets

The IFRS 9 Framework for financial assets is a decision model

to help you go through decisions

with regard to

the classification and measurement of financial assets.

IFRS 9 recognises three different accounting policies for financial instruments. These principles determine the value of the financial instruments on the balance sheet. The IFRS 9 Framework for financial assets

The initial measurement is based on amortised costs, this is the amount for which an asset or liability is initially recognised in the balance sheet less principal repayments, plus or minus the cumulative amortisation Read more

Financing activities

Financing activities - Activities that result in changes in the size and composition of the contributed capital and borrowings of the entity.

Held-to-maturity financial assets Example

Held-to-maturity financial assets example have passed the SPPI test and the business model test (Held to collect), measured at amortized cost and eff. interest

Fair value through profit or loss

Financial assets measured at fair value through profit or loss 2. This is part of the classification of financial assets, representing the remaining or designated class of financial assets.

Realised cash flows differ from expectations

Realised cash flows differ from expectations Realised cash flows differ from expectations – The business model assessment is forward-looking, so cash flows may sometimes be realised in a way that differs in a way that differs from the entity’s expectations at the time of the original assessment.

For example, the entity might sell more assets from the portfolio than had been anticipated at the time of making the original assessment for various reasons. 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
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