IAS 39 - Financial Instruments : Recognition & Measurement Flashcards
Describe the classification of a financial asset or liability held for trading?
These are financial assets held for the purpose of selling in the short term. This includes derivatives and investments
What are the 4 categories that Financial Instruments can be classified as when the instrument is first recognised?
1) Financial assets and liabilities held for trading
2) Loans and receivables
3) Held to maturity investments
4) Available for sale financial assets
Describe the classification of loans and receivables?
Financial assets with fixed or determinable payments that are not quoted in an active market, not designated as held for trading and not available for sale.
Describe the classification for held to maturity investments?
Financial assets with fixed or determinable payments and fixed maturity.
It includes quoted debt securities and quoted redeemable preference shares held as invesments. Equity securities should not be classified as held to maturity investments
Describe the classification of available for sale financial assets?
Non derivative financial assets available for sale or any such assets not classified in one of the other 3 categories.
Includes equity securities not held for trading
When and how should a financial asset or financial liability be initially recognised and measured?
In general a financial asset or financial liability should be:
> Recognised when an entity enters into the contractual provisions of the financial instrument.
> Initially measured at FAIR VALUE. Transaction costs such as professional fees should be included in the initial carrying amount. The exception is that transaction costs for financial instruments classified as at fair value through profit and loss should be recognised as an expense in profit or loss.
How should a financial asset or financial liability be subsequently measured?
After initial recognition at fair value the subsequent measurement of financial assets and the treatment of profit and losses depends upon how they were catergorised.
What is the subsequent measurement for financial assets and financial liabilities held for trading?
At the end of each reporting period the financial asset should be remeasured at fair value. Changes in fair value should be recognised as gain/loss in the profit or loss.
What is the subsequent measurement for held for maturity investments?
A financial asset classified as held to maturity should be measured at AMORTISED COST.
What is the subsequent measurement for loans and receivables?
Loans and receivables should be measured at AMORTISED COST.
What is the subsequent measurement for available for sale financial assets?
Available for sale assets should be measured at fair value at the end of each reporting period. Any increase or decrease in fair value should be recognised in other comprehensive income.
What is the definition of derecogntion?
Derecognition is the removal of a previously recognised financial asset or financial liability from an entity’s statement of financial position
When should a financial asset be derecognised?
A financial asset should NOT be dereocognised where the entity continues to retain the risks and rewards of ownership. This assessment should be carried out by comparing the risks and rewards held by the entity before and after the transfer.
When should a financial liability be derecognised?
A financial liability should be derecognised when an entity discharges the obligations specified in the contract, or they expire.
How is a gain or loss on derecognition of an asset calculated?
When an asset is derecognised, the gain or loss is calculated as the difference between:
> the carrying amount and
> the sum of :
- the consideration received
- any cumulative gain or loss previously recognised in other comprehensive income (this only applies in respect of an available for sale financial asset)
