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IFRS 9 Financial Instruments Measurement

IFRS 9 uses the following criteria for determining the classification as of financial assets at Amortized Cost, FVOCI or FVPL categories apply:

The critical issues for classifying and measuring financial assets are whether:

Both of these tests have to be met in order to account for an instrument at Amortized Cost or … Read more

IFRS 9 The Business Model Test

Under IFRS 9, a necessary condition (see IFRS 9 Classification and Measurement of Financial Instruments) for classifying a loan or receivable at Amortized Cost or FVOCI is whether the asset is part of a group or portfolio that is being managed within a business model whose objective is to collect contractual cash flows (Amortized Cost), or to both collect contractual cash flows and to sell (FVOCI). Otherwise, the asset is measured at FVPL. The key elements of this test are listed below.

Observe: IFRS 9 recommends applying the Business Model test before applying the SPPI test because this may eliminate the need to apply the more detailed SPPI test, which is applied at a more granular level.

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The IFRS 9 Framework for 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 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 of the difference between that initial amount and the redemption amount calculated by using the effective interest method and less any write-downs (directly or through the use of a provision) arising from impairment or un-collectibility.

The second measurement basis is the fair value through other comprehensive incomeRead more

Curing of a credit-impaired financial asset

See credit-impaired financial asset for some introduction to this illustrative example.

The case

An existing loan with an effective interest rate of 10% has become credit-impaired. Lifetime expected credit losses have been recognised on the loan as of 1 January Year 20×1.

The expected shortfall in cash flows is shown in Table 1 and remain unchanged until 31 December N+3. Discounted at the effective interest rate (EIR) this gives an expected credit loss (ECL) as at 1 January of CU59,000, as shown in Table 1.

Table 1: Contractual & expected cash flows

Cash flows as at 31 Dec

in CU ‘000






Contractual cash flows






Expected cash

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Setting the scene: the Expected Credit Losses model

Start here to get a good understanding of  Expected Credit Losses or continue, you decide…… The model should be applied to:Setting the scene: the Expected Credit Losses model

The IFRS 9 impairment model … Read more

Summary impairment of financial assets

The impairment requirements are applied to:

The impairment model follows a three-stage approach based on changes in expected credit losses of a financial instrument that determine:

Initial recognition

At initial recognition of a financial asset, an entity recognises, as a standard approach, a loss allowance equal to 12-month expected credit losses. The actual … Read more