Accounting policies for financial instruments

Accounting policies for financial instruments – a quite complete overview of all kinds of accounting issues for financial instruments such as measurement categories, initial recognition, amortised costs and effective interest rate, financial assets, impairment, derecognition, financial liabilities, derecognition, and derivatives. Enjoy it!

Summary of significant financial instruments accounting policies

1 Financial assets and liabilities

1.1 Summary of measurement categories

The insurer classifies its financial assets into the following categories:

Business model and cash flow characteristics

Type of financial instruments

Classification

Hold to collect business model and solely payments of principal and interest

Cash and cash equivalents

Amortised cost (AC)

Hold to collect and sell business model and solely payments of principal and interest

Government bonds

Fair value through other

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1 Best guide Debt instruments at FVOCI

– A Read more

Hold to collect and sell – How 2 best account it in IFRS 9 classification of financial assets

Under the 'hold to collect and sell’ business model, the objective is to both collect the contractual cash flows and sell the financial asset for cash

IFRS 9 The Business Model Test

is a necessary condition (see IFRS 9 Classification and Measurement of Financial Instruments) for classifying a loan or receivable Read more

Other business models – How 2 best account it in IFRS 9

Other business models are all those that do not meet the ‘hold to collect’ or ‘hold to collect and sell’ criteria. Like realising cash flows through sale

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.

IFRS 9 Classification of financial assets

Classification of financial assets , at fair value through other comprehensive income (FVOCI) or Read more

Factoring and reverse factoring

Factoring and reverse factoring - There is no specific guidance on the classification of cash flows from traditional factoring or reverse factoring arrangements

Factoring without recourse

Factoring without recourse – This is an illustration of how derecognition is applied in practice. The objective is to present the mechanics of applying the IFRS 9 requirements for derecognition of financial assets, starting with an analysis of the transaction using the flowchart [IFRS 9 B3.2.1], and culminating with the initial and subsequent accounting entries for both the transferor and transferee.

Background and assumptions

Entity G enters into an agreement to assign its portfolio of €20 million trade receivables without recourse to Factor H. The receivables have 60-day terms and are subject to normal warranties on the existence of the receivables at the date of transfer (for example, if a customer returns the goods purchased because they are faulty, Read more

Factoring with recourse

Factoring with recourse – This is an illustration of how derecognition is applied in practice. The objective is to present the mechanics of applying the IFRS 9 requirements for derecognition of financial assets, starting with an analysis of the transaction using the flowchart [IFRS 9 B3.2.1], and culminating with the initial and subsequent accounting entries for both the transferor and transferee.

Background and assumptions

Entity J enters into an agreement to assign its portfolio of €20 million trade receivables with recourse to factor K. The receivables have 90-day terms and are subject to normal warranties on the existence of the receivables at the date of the transfer (for example, if a customer returns the goods purchased because they Read more