Business model hold to collect

Ok so the financial instrument to classify and measure is a debt instrument.

Based on the overall business, not instrument-by-instrument

Centers on whether financial assets are held to collect contractual cash flows:

  • How the entity is run
  • The objective of the business model as determined by key management personnel (KMP) (per IAS 24 Related Party Disclosures).

The objective of the ‘hold to collect’ business model is to hold financial assets to collect their contractual cash flows, rather than with a … Continue reading

Business model hold to collect and sell

Ok so the financial instrument to classify and measure is a debt instrument and the business model is not to hold to collect.

Based on the overall business, not instrument-by-instrument

Centers on whether financial assets are held to collect contractual cash flows:

  • How the entity is run
  • The objective of the business model as determined by key management personnel (KMP) (per IAS 24 Related Party Disclosures).

Under the ‘hold to collect and sell’ business model, the objective is to both … Continue reading

The SPPI test

Ok so the financial instrument to classify and measure is a debt instrument, the business model is to hold to collect.

Based on an instrument-by-instrument basis

Financial assets with cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.

Interest is consideration for only the time-value of money and credit risk.

A more elaborate explanation and examples of assets likely/not likely to meet the SPPI test.

The question is: Are the payments solely payments Continue reading

The SPPI test

Ok so the financial instrument to classify and measure is a debt instrument, the business model is to hold to collect and sell.

Based on an instrument-by-instrument basis

Financial assets with cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.

Interest is consideration for only the time-value of money and credit risk.

A more elaborate explanation and examples of assets likely/not likely to meet the SPPI test.

The question is: Are the payments Continue reading

Is the fair value option applied?

At initial recognition an entity may irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an ‘accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases (see Designation eliminates …. an accounting mismatch).

The question is: Do you want to designate a financial asset as measured Continue reading

Is the fair value option applied?

At initial recognition an entity may irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an ‘accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases (see Designation eliminates …. an accounting mismatch).

The question is: Do you want to designate a financial asset as measured Continue reading

Equity instruments held for trading?

OK the financial asset is an equity instrument.

Held for trading or not?

Financial assets acquired or held for the purpose of selling in the short term or for which there is a recent pattern of short-term profit taking are held for trading. Financial assets acquired or held for the purpose of holding for a longer period of time are not held for trading but as longer term investments.

The question is: Is the equity instrument held for trading?

YesContinue reading

Is the Fair value OCI applied?

OK we are looking at an equity instrument not held for trading.

An entity may make an irrevocable election at initial recognition for particular investments in equity instruments that would otherwise be measured at fair value through profit or loss to present subsequent changes in fair value in other comprehensive income.

At initial recognition, an entity may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument … Continue reading

Financial asset valued at amortised costs

This is the category classification criteria at initial recognition

Both of the below conditions have been met:

  • Business model objective: financial assets held in order to collect contractual cash flows
  • Contractual cash flow characteristics: solely payments of principal and interest on the principal amount outstanding.

Subsequent measurement

  • Amortised cost using the effective interest method.
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