Instruments with stepped interest payments

[From Guidance on implementing IFRS 9 Financial Instruments]

Example of calculating the gross carrying amount: debt instruments with stepped interest payments

Sometimes entities purchase or issue debt instruments with a predetermined rate of interest that increases or decreases progressively (‘stepped interest’) over the term of the debt instrument. If a debt instrument with stepped interest is issued at CU1,250 and has a maturity amount of CU1,250, would the gross carrying amount equal CU1,250 in each reporting period Continue reading

Classification of financial assets

Whether a financial asset is classified as at amortised cost, at fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVPL) is mainly based on the business model assessment and the solely payments of principal and interest (SPPI-) test.

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:

The objective of the ‘hold to collect’ business model is to hold financial assets to collect their contractual cash flows, … 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:

Under the ‘hold to collect and sell’ business model, the … 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 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 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? Continue 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 Continue reading