Investments in Financial Assets

Question 1

IFRS Ammortized Cost = GAAP “_______”?

Answer 1

Held till Maturity

Question 2

IFRS FV through P&L = GAAP “________”?

Answer 2

Held for trading

Question 3

IFRS FV through OCI = GAAP “________”?

Answer 3

Available for Sale

Question 4

What securities are classified as “Amortized Cost”?

Answer 4

Debt securities only

1. Held until Maturity
2. Cash flows are either principal or Interest on principal

Question 5

What securities are classified as “FV through P&L”?

Answer 5

Equities
Debt Securities held for trading
Derivatives not used for hedging
Assets with embedded options (Convertible Bonds, etc)

Question 6

What securities are classified as “FV through OCI”?

Answer 6

All other securities not classified under “Amortized Cost” & “FV through P&L”

Question 7

Summarize Classification of “Amortized Cost” Securities

Answer 7

Balance Sheet: Amortized Cost
Income Statement: Coupon Cash flow adjusted for
amortization of premium or
discount (No changes in FV)

Question 8

What is “Amortized Cost” in reporting Debt Securities?

Answer 8

Amortized Cost = Original Cost + amortized discount
OR
Original Cost - amortized premium

Amortized Discount/Premium =

(ORIGINAL COSTYIELD) - (FACE VALUECOUPON)

Question 9

How is Interest Income calculated under Amortized Cost Method?

Answer 9

Interest Income = ORIGINAL COST*YIELD

Question 10

How is Realized/Unrealized gain calculated under “FV through P&L” reporting?

Answer 10

Realized/ Unrealized G/L:

= New FV - Amortized Cost
= New FV - (Original Cost +/- Amort Discount/Prem)

Question 11

Is Reclassification for Equity securities allowed under IFRS 9?

Answer 11

No, as the initial selection is irrevocable (FVPL or FVOCI)

Question 12

Is Reclassification for Debt securities allowed under IFRS 9?

Answer 12

Yes, only if the business model has changed

Question 13

How are Debt securities reclassified under IFRS 9?

Answer 13

If Debt securities are reclassified from Amortized cost —–> FVPL, unrealized gains/losses which were ignored are now added in Income statement.

If Debt securities are reclassified from FVPL —> Amortized cost, they are transferred at Fair Value on the transfer date, FV becomes Carrying Amount

Question 14

How is Loan Impairment treated under IFRS 9?

Answer 14

Incurred loss model —> Expected Loss model

Not only evaluate current and historical information about loan performance, but also use forward looking information

12 MONTH EXPECTED LOSSES FOR PERFORMING LOANS AND LIFE TIME EXPECTED LOSSES FOR NON-PERFORMING LOANS