IFRS 9, IAS 32

Question 1

Measurement of ECL

Answer 1

• Stratify the population of contracts by their risk character
• Computation should be based on GCA or T+OR
• Historical default rates over expected life of T+OR in a provision matrix
• Rebuttable presumption that assets that are more than 30 days past due date reflect a significant increase in credit risk, not relevant
• Using a flat rate is incorrect
• ECL should be measure in a way that reflects a probability weighted amount that is determined by evaluating a range of possible outcomes
• Higher probability of defaults would be expected resulting in higher losses. ECL rate should be determined for each time
• LECL remained unchanged since 20xx. This is incorrect. ECL should be measured in a way that reflects reasonable and supportable infor that is available without undue cost or effort, current conditions and forecasts of future economic conditions. The use of old rates ignores the current and forecasts of future economic condition (mention examples)
• The fact that no amount of debt is recoverable implies that the debtor should be written off
• Consider if the amounts shown in the provision matrix are net or gross of ECL provision if they are net ECL provisions they will be misstated due to double accounting for the amount
• A further stratification of receivables should be performed based on risk profile of various categories of receivables

Question 2

General notes: FI

Answer 2

• Not FA through OCI, CF received not SPPI if there is an option to convert
• Interest rate linked to equity value due to conversion option giving the holder exposure returns in excess of principal and interest
• TC for an equity trxn shall be accounted for as a deduction from equity net any related income tax benefit
• If an entity acquires their own equity instrument deduct from equity. No gain or loss is recognized.
• Change in FV of an equity not recognized in FS
• ECLA on balance
• At initial recognition there is not payment or interest
• Modification gain or loss (Balance - PV)
• No impairment if asset carried at FV ECL deemed to include FV
• Interest charged is lower there is a donation expense. FV being lower than principal amount
• Difference in transaction price and FV
• Difference due to….
• Day 1 loss recognized in P/L
• Consider significant risk
• If there is a condition in the contract it is a contingency

Question 3

Fluctuating price in terms of an agreement

Answer 3

• It is a derivative
• The forward contract requires no initial investment
• Consider if the forward agreement was entered into by X as part of their normal purchase requirements.
• Because X has entered into a forward agreement to purchase vaccine for its own use the forward contract will not be recognised in Accra’s financial statements as a derivative in terms of IFRS 9.

Question 4

When determining classification consider

Answer 4

• Business model
• Reasonable and supportable information
• Frequency, value and timing
• Intention

Question 5

Buy bonds_ Amortization cost

Answer 5

1. Find PV, FV = purchase amount
2. Add PV+ TC to find effective interest
   Initial JE = PV+TC
3. Interest income
4. PMT received

Question 6

Classified OCI

Answer 6

• Dividends will be classified through P/L as soon as you can receive payments

Question 7

Recognize ECL

Answer 7

Dr ECLA (SFP)
Cr ECL (P/L)

if CY ECLA is small- PY ECLA big