Financial Instruments - Passive Instruments

Question 1

Initial measurement

Answer 1

• all investments are initially recorded at FV

Question 2

Subsequent measurement

Answer 2

1) FVTPL
2) amortized cost
3) FVTOCI (IFRS only)

Question 3

FVTPL

Answer 3

• assets held for trading and assets which done meet amortized cost or FVTOCI criteria
• transaction costs are expensed
• subsequent measurement at FV
• impairment loss not separated from overall change in FV
• derecognition G/L recognized in profit/loss

Question 4

Amortized cost

Answer 4

• held to collect contractual cash flows, when cash flows consist of principal and interest
• transaction costs added to the cost of the investment
• subsequent measurement at amortized cost using effective interest rate method
• impairment loss when PV of future cash flows are less than carrying amount
• derecognition G/L recognized in profit/loss

Question 5

FVTOCI

Answer 5

• equity investments that do not qualify as held for trading or debt instruments with cash flow only of payments of principal and interest
• transaction costs are capitalized
• subsequent measurement: equity at FV, debt at amortized cost using the effective interest rate method
• impairment loss: equity impairment is not separated from other FV changes, debt impairment loss is cumulatively transferred to P/L at end
• derecognition: equity amounts in OCI are not recycled in NI, Debt G/L are transferred from OCI to Profit/loss

Question 6

ASPE differences

Answer 6

• initial = FV
• transaction costs: add to carrying value if measured at cost, expense if measured at FV
• subsequent measurement: equity instruments at FV if traded in active market, cost if not. And everything else will be measured at amortized cost
• impairment: highest of… PV of expected cash flows, selling price, or amount realizable from collateral
• Derecognition: G/L in profit/loss