IFRS 9- Financial Instruments

Question 1

Objective

Answer 1

• provide principles for financial reporting of financial assets and liabilities.
• offer users relevant and useful information for assessing an entity’s future cash flows.

Question 2

Scope:

Answer 2

Excludes:
* Interests in subsidiaries, associates and joint ventures under.
* Leases
* IAS 19- Employee benefits
* IAS 32- Equity instruments
* IFRS 17 - Investment Contracts
* IFRS 3- Forward contracts
* IFRS 2- Share bsaed pmts and loan commitments
* IFRS 15- Revenue liabilities or rights.
* IAS 37=

Question 3

Initial recognition:

Answer 3

• when an entity becomes a party to the contractual provisions of the instrument.
• using either trade date accounting or settlement date accounting.

Question 4

Derecognition criteria:

Answer 4

An entity derecognizes a financial asset when contractual rights to cash flows expire or when the asset is transferred

transfers substantially all risks and rewards of ownership.

Question 5

Transfer Conditions:

Answer 5

either transferring contractual rights to receive cash flows or retaining those rights but assuming an obligation to pay cash flows to others.

Question 6

Servicing Contracts:

Answer 6

If an entity transfers an asset but retains the right to service it, it recognizes either a servicing asset or liability based on the adequacy of compensation.

Question 7

Allocation of Consideration:

Answer 7

When part of a financial asset is transferred, the consideration received is allocated between the part derecognized and the part retained.

Question 8

**Exchanges or modifications of liabilities: **

Answer 8

are accounted for as extinguishments and recognition of new liabilities

Question 9

Financial Assets Classification Basis:

Answer 9

classified as subsequently measured at:
* amortised cost,
* fair value through other comprehensive income,
* or fair value through profit or loss

Based on:

• entity’s business model ;and
• contractual cash flow characteristics.

Question 10

When is a financial asset measured at Amortised Cost:

Answer 10

If they are held within a business model to collect contractual cash flows and have cash flows that are solely payments of principal and interest.

Question 11

When is a financial asset measured at Fair Value through OCI:

Answer 11

if they are held within a business model to collect contractual cash flows and sell financial assets, and have cash flows that are solely payments of principal and interest.

Question 12

Initial Measurment

Answer 12

at fair value plus or minus transaction costs directly attributable to their acquisition or issue, except for trade receivables which are measured at transaction price if they do not contain a significant financing component.

Question 13

When is a financial asset measured at Fair Value through P&L:

Answer 13

Default unless classified otherwise. There’s an irrevocable election at initial recognition for certain equity investments to present changes in fair value in other comprehensive income.

Question 14

Classification of Financial Liabilities:

Answer 14

Generally measured at amortised cost, except for specific cases like those measured at fair value through profit or loss, arising from transfer of financial assets not qualifying for derecognition, financial guarantee contracts, commitments to provide loans at below-market rates, and contingent consideration in business combinations.

Question 15

Reclassification:

Answer 15

only when, an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with guidance.

An entity shall not reclassify any financial liability.

Question 16

Modification of contractual cash flows:

Answer 16

the gross carrying amount is recalculated and a modification gain or loss is recognized.

Question 17

Write-offs:

Answer 17

are directly reduced from the gross carrying amount of financial assets when recovery is unlikely.