Recognition and Derecognition of Financial Instruments (IFRS 9) Flashcards
When are financial instruments recognised in the SOFP?
It is recognised when an entity becomes a party to the contract.
What are the exemptions to the rule earlier
If the contract has been entered into as a non-financial contract - e.g. to purchase/sell goods
and Neither party to the contract has performed any of their obligations under the contract at the reporting date.
When should financial assets be derecognised?
When contractual rights to cash flows have expired
When should financial liabilities be derecognised?
When the obligation in the contract is discharged, cancelled, or expired.
Measurement of Financial Assets (IFRS 9)
When measuring financial assets under IFRS 9, what 2 tests do we need to apply?
Business model test - is the financial asset held ina. model where the objective is to collect contractual cash flows?
and
Cash flow characteristics test (SPPI)
- are the cash flows from the financial assets solely payments of principal and interest?
Measurement using fair value
IFRS 9 uses the IFRS 13 approach to determine FV.
Thus, ideally, FV are obtained from an active market for that asset (Level 1), and an active market for a similar asset (Level 2), with cash flow-based estimations used if market-based estimates are unavailable.
Measurement using amortised cost
Amortised cost is defined by IFRS 9 in terms of financial assets as
The amount measured at initial recognition minus repayments plus cumulative amortisation using the effective interest method adjusted for any impairment.
(Effective interest rate is essentially IRR, will be provided).
Measurement of financial liabilities (IFRS 9)
On recognition, financial liabilities are recorded at fair value.
subsequently, financial liabilities held for trading (and derivatives) are measured at FV through profit or loss.
All other financial liabilities are subsequently measured at amortised cost.
