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IFRS 9

Financial Instruments
Part II: Classification and measurement

IFRS Foundation

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IFRS Foundation

Agenda

Classification of financial assets and financial


liabilities
Derivatives
Embedded derivatives
Reclassification of financial assets
Measurement of financial assets and financial
liabilities
Estimates and other judgements

IFRS Foundation

Classification

IFRS Foundation

Classification
Financial assets
Step 1

Business
model = hold
to collect

Business
model = hold
to collect and
sell

Other
business
models

Cash flows are


solely payments of
principal and
interest (SPPI)

Amortised
cost

FVOCI*

FVTPL

Other types of
cash flows

FVTPL

FVTPL

FVTPL

Step 2

*Excludes investments in equity instruments. An entity can elect to present FV changes in OCI.
IFRS Foundation

Classification of financial assets


Fair value through profit or loss (FVTPL)

Residual
category

Fair value
option
Designated at initial
recognition eliminates or reduces
accounting mismatch

If a financial asset
does not fit in another
category it is
automatically FVTPL

Note: the option to


designate is
irrevocable
IFRS Foundation

Classification of financial assets

Fair value through other comprehensive income

Requirements for investments in equity instruments


Irrevocable election for particular investments in equity instruments that
would otherwise be measured at FVTPL
Condition: neither held for trading nor contingent consideration (IFRS 3)

Held for trading (definition)


Acquired or incurred principally for the purpose of selling or repurchasing
it in the near term
Part of a portfolio of identified financial instruments that are managed
together and for which there is evidence of a recent actual pattern of
short-term profit-taking
Derivative (except for a derivative that is a financial guarantee contract or
a designated and effective hedging instrument)

Election made on an instrument-by-instrument basis


IFRS Foundation

Contractual cash flow characteristics (step 1) 8


Financial assets with contractual cash flows that are solely payments of
principal and interest (SPPI) are measured at amortised cost or FVOCI
depending on the business model in which the asset is held.
Principal = amount transferred by holder (fair value at initial recognition)
Interest is consideration for:
time value of money and credit risk;
other lending risks (for example, liquidity risk);
other associated costs (for example, administrative costs); and
a profit margin

IFRS Foundation

Contractual cash flow characteristics (step 1)


(continued)

Exception for regulated rates


government or regulatory authority sets interest rates where the time
value of money (TVM) element does not provide consideration for only
the passage of time
the regulated interest rate may be a proxy for the TVM element if the rate
provides consideration that is broadly consistent with the passage of time
and does not provide exposure to risks or volatility that is inconsistent with
a basic lending arrangement

Simplified the test for a modified economic relationship:


the TVM element is not perfect, for example, the rate is periodically reset
to an average of short- and long-term rates
assess modification of the TVM element to determine whether contractual
cash flow represent SPPI
qualitative or quantitative assessment of TVM element

IFRS Foundation

Example 1:* contractual cash flow characteristics

Solely payments of principal and interest on the principal amount


outstanding

10

Instrument A is a bond with a stated maturity date.


Payments of principal and interest on the principal
amount outstanding are linked to an inflation index of the
currency in which the instrument is issued.
The inflation link is not leveraged and the principal is
protected.

Refer to paragraph B4.1.13 of IFRS 9 Financial


Instruments
*

IFRS Foundation

Example 2:* contractual cash flow characteristics

Solely payments of principal and interest on the principal amount


outstanding

11

Instrument B is a variable interest rate instrument with a stated


maturity date that permits the borrower to choose the market
interest rate on an ongoing basis.
For example, at each interest rate reset date, the borrower can
choose to pay three-month LIBOR for a three-month term or
onemonth LIBOR for a one-month term.

Refer to paragraph B4.1.13 of IFRS 9 Financial


Instruments
*

IFRS Foundation

Example 3:* contractual cash flow characteristics

Solely payments of principal and interest on the principal amount


outstanding

12

Instrument C is a bond with a stated maturity date and pays a


variable market interest rate.
That variable interest rate is capped.

Refer to paragraph B4.1.13 of IFRS 9 Financial


Instruments
*

IFRS Foundation

Example 4:* contractual cash flow characteristics

Solely payments of principal and interest on the principal amount


outstanding

13

Instrument D is a full recourse loan and is secured by collateral.

Refer to paragraph B4.1.13 of IFRS 9 Financial


Instruments
*

IFRS Foundation

Example 5:* contractual cash flow characteristics

Solely payments of principal and interest on the principal amount


outstanding

14

Instrument E is issued by a regulated bank with a stated maturity


date.
pays a fixed interest rate and all contractual cash flows are nondiscretionary.

Issuer subject to legislation that permits or requires a national


resolving authority to impose losses on holders of particular
instruments, including Instrument E, in particular circumstances.
For example, the national resolving authority has the power to
write down the par amount of Instrument E or to convert it into a
fixed number of the issuers ordinary shares if the national
resolving authority determines that the issuer is having severe
financial difficulties, needs additional regulatory capital or is
failing.
Refer to paragraph B4.1.13 of IFRS 9 Financial
Instruments
*

IFRS Foundation

Example 6:* contractual cash flow characteristics


NOT solely payments of principal and interest on the principal
amount outstanding

15

Instrument F
A bond that is convertible into a fixed number of equity instruments of the
issuer.
Instrument G
A loan that pays an inverse floating interest rate (ie the interest rate has an
inverse relationship to market interest rates).
Instrument H
A perpetual instrument but the issuer may call the instrument at any point
and pay the holder the par amount plus accrued interest due.
The instrument pays market interest rate but payment of interest cannot be
made unless the issuer is able to remain solvent immediately afterwards.
Deferred interest does not accrue additional interest.
Refer to paragraph B4.1.14 of IFRS 9 Financial
Instruments
*

IFRS Foundation

Types of business model (step 2)


Holding assets in
order to collect
contractual cash
flows

Both collecting
contractual cash
flows and selling
financial assets

16

Other business
models

Realise cash flows by


collecting contractual
payments over the life
of the instrument

Both collecting
contractual cash flows
and selling sale
integral to achieving
the objective of the
business model

Neither held to collect


nor held to collect and
for sale

Typically involve lower


frequency and value of
sales

Typically involve
greater frequency and
value of sales

Collection of
contractual cash flows
is incidental to the
objective of the model

Measurement:
amortised cost

Measurement: FVOCI

Measurement: FVTPL

IFRS Foundation

Example 7:* business model

Holding financial assets to collect the contractual cash flows

17

Entity A holds investments to collect their contractual cash flows.


Entity A performs credit risk management activities to minimise
credit losses.
In the past, sales have typically occurred when the financial assets
credit risk has increased, ie credit criteria specified in the entitys
documented investment policy no longer met.
Infrequent sales have occurred as a result of unanticipated funding
needs.
Reports to key management personnel focus on the credit quality of
the financial assets and the contractual return.
Entity A also monitors fair values of the financial assets, among other
information.
Refer to Example 1 in paragraph B4.1.4 of IFRS 9
Financial Instruments
*

IFRS Foundation

Example 8:* business model

Holding financial assets to collect the contractual cash flows


Entity

Originates
loan

18

Customers
Payment of contractual
cash flows

Sells loan
Transfer of
contractual cash
flows

Controls consolidate

Securitisation
vehicle

Issues instrument

Investors

Assume that the loans continue to be recognised in the consolidated statement of


financial position because they are not derecognised by the securitisation vehicle.
Refer to Example 3 in paragraph B4.1.4 of IFRS 9
Financial Instruments
*

IFRS Foundation

Example 9:* an entitys business model

Objective may be to hold financial assets to collect the contractual cash


flows.

19

A financial institution holds financial assets to meet liquidity needs


in a stress case scenario.
No sale is anticipated except in such scenarios.

Credit quality of the financial assets is monitored


Objective in managing the financial assets: collect the contractual
cash flows.
Financial assets are monitored on the basis of their fair value from
a liquidity perspective
Objective: cash amount that would be realised in a stress case scenario
would be sufficient to meet the entitys liquidity needs.

Periodically, the entity makes sales that are insignificant in value to


demonstrate liquidity.
Refer to Example 4 in paragraph B4.1.4 of IFRS 9
Financial Instruments
*

IFRS Foundation

Example 10:* an entitys business model

Both collecting contractual cash flows and selling financial assets

20

A financial institution holds financial assets to meet its everyday


liquidity needs.
The entity seeks to minimise the costs of managing those liquidity
needs and therefore actively manages the return on the portfolio.
Return = collecting contractual payments + gains and losses from
the sale of financial assets.
The entity holds financial assets to collect contractual cash flows
and sells financial assets to reinvest in higher yielding financial
assets or to better match the duration of its liabilities.
In the past, this strategy has resulted in frequent sales activity of
significant value.
This activity is expected to continue in the future.
Refer to Example 6 in paragraph B4.1.4C of IFRS 9
Financial Instruments
*

IFRS Foundation

Classification
Financial liabilities

21

1. At fair value through


profit or loss

2. Amortised cost

Held for trading,


including derivative
liabilities that are not
accounted for as
hedging instruments
Derivative liabilities
that are accounted for
as hedging
instruments
Fair value option
designated at inception

IFRS Foundation

Definition of derivative

Value
changes in
response to
the change in
the underlying

Requires little
or no initial
net
investment

IFRS Foundation

22

Settled at a
future date

Examples of derivatives and underlyings

23

Type of contract

Main pricing-settlement variable


(underlying variable)

Interest rate swap

Interest rates

Currency swap (foreign exchange swap)

Currency rates

Commodity swap

Commodity prices

Equity swap

Equity prices (equity of another entity)

Purchased or written treasury bond option (call


or put)

Interest rates

Interest rate futures linked to government debt


(treasury futures)

Interest rates

Currency futures

Currency rates

Currency forward

Currency rates

Commodity forward

Commodity prices

Equity forward

Equity prices (equity of another entity)


IFRS Foundation

Embedded derivatives

24

What is an embedded derivative?


A component of a hybrid contract that also includes a non-derivative
host with the effect that some of the cash flows of the combined
instrument vary in a way similar to a stand-alone derivative

Example: equity kicker


Venture capital entities providing subordinated loans agree that if and when
the borrower lists its shares on a stock exchange, the venture capital entity
is entitled to receive shares of the borrowing entity free of charge or at a
very low price (an equity kicker) in addition to the contractual payments.
IFRS Foundation

Accounting for embedded derivatives

25

Does the hybrid contract contain a host that is an asset within the scope of IFRS 9?

Yes
Apply the requirements for
classification of financial
assets in IFRS 9 to the
entire hybrid contract

No
Separate embedded derivative from host and account for
as a derivative under IFRS 9 if the following three
conditions are satisfied:
economic
characteristics
and risks of the
embedded
derivative are not
closely related to
the economic
characteristics
and risks of the
host
IFRS Foundation

a separate
instrument with
the same terms
as the
embedded
derivative would
meet the
definition of a
derivative

the hybrid
contract is not
measured at
FVTPL (ie a
derivative that
is embedded in
a financial
liability at
FVTPL is not
separated)

Reclassification
Conditions

26

Financial assets
When, and only when, an entity changes
its business model for managing financial
assets expected to be very infrequent

Financial liabilities
An entity shall not reclassify any financial
liability
Reclassification shall be applied prospectively from the reclassification date.
IFRS Foundation

Changes in business model


Examples of change in business model:

27

Not a change in business model

1. An entity has a portfolio of commercial loans


A change in intention related to
that it holds to sell in the short term.
particular financial assets (even
o The entity acquires a company that manages
in circumstances of significant
commercial loans and has a business model
changes in market conditions).
that holds the loans in order to collect the
The temporary disappearance of
contractual cash flows.
a particular market.
o The portfolio of commercial loans is no longer A transfer of financial assets
for sale, and the portfolio is now managed
between parts of the entity with
together with the acquired commercial loans
different business models.
and all are held to collect the contractual
cash flows.
2. A financial services firm decides to shut down
its retail mortgage business - no longer accepts
new business and the financial services firm is
actively marketing its mortgage loan portfolio for
sale.

IFRS Foundation

28

Measurement

IFRS Foundation

Measurement at Initial Recognition

2929

Adjusted for
transaction Costs

Initial
carrying
amount

Initial
carrying
amount

Fair value

Initial
carrying
amount

Asset or Liability

Asset

Liability

Measured at
FVTPL

Measured
at other
than FVTPL

Measured
at other
than FVTPL

IFRS Foundation

Example 11:* accounting for transaction costs


Initial and subsequent measurement - FVOCI
An entity acquires a financial
asset for CU100 plus a purchase
commission of CU2.
The reporting period ends one
day later, when the quoted market
price of the asset is CU100.
If the asset were sold, a
commission of CU3 would be
paid.
Refer to paragraph B5.2.2 of IFRS 9 Financial
Instruments
*

IFRS Foundation

30

Fair value versus transaction price

31

Best evidence of the fair value of a financial instrument at initial recognition is normally
the transaction price.
If fair value at initial recognition differs from transaction price:
If fair value is evidenced by a quoted price in an active market for an identical asset or
liability or based on valuation technique that uses only data from observable markets
Recognise the difference between the fair value at initial recognition and the
transaction price as a gain or loss
In all other cases:
o At initial recognition: defer the difference
o After initial recognition: recognise that deferred difference as a gain or loss only to
the extent that it arises from a change in a factor that market participants would take
into account

If part of the consideration might not be for the financial instrument itself, eg
Interest free loan to a subsidiary
Providing below-market interest rate loan for rebates or minimum purchase volume
regarding other items
o In the cases above, an entity measures the fair value of the financial instruments

IFRS Foundation

Subsequent measurement of financial asset


Amortised cost
Statement of
financial
position

Profit or loss

32

Other
Comprehensiv
e Income

Interest revenue using


effective interest method
Impairment
Amortised cost

Nil
Foreign exchange gains
& losses
Gain or loss on
derecognition
IFRS Foundation

Subsequent measurement of financial asset


Fair value through OCI (debt instruments)

Statement
of
financial
position

Fair value

Profit or loss
Interest revenue
using effective
interest method

33

Other
Comprehensiv
e Income
Fair value change
other than those
recognised in profit
or loss

Impairment

Foreign exchange
gains & losses
IFRS Foundation

(amounts
accumulated are
recycled to P&L
upon derecognition)

Example 12:* Subsequent measurement of financial asset


Debt instrument measured at FVOCI

34

FV of debt instrument = CU1,000 on 15 December 20X0 (measured at FVOCI).


5% interest rate over the contractual term of 10 years.
Effective interest rate = 5%
At initial recognition the entity determines that the asset is not purchased or
originated credit-impaired.
Debit
Financial asset FVOCI

CU1,000

Cash

CU1,000

(To recognise the debt instrument measured at its FV)

FVOCI means fair value through other comprehensive income.


Refer to Example 13 in paragraphs IE78-IE81 of
IFRS 9 Financial Instruments
*

Credit

IFRS Foundation

Example 12:* Subsequent measurement of financial asset


Debt instrument measured at FVOCI

35

31 December 20X0 (the reporting date) FV decreased to CU950 as a result of


changes in market interest rates.
The entity determines that there has not been a significant increase in credit risk
since initial recognition and that expected credit losses should be measured at an
amount equal to 12-month expected credit losses (ECL), which amounts to CU30.
(Note: refer to Part III of the IFRS 9 CPD for how to calculate 12-month ECL).

Debit
Impairment loss (P&L)

CU30

Other comprehensive income (a)

CU20

Financial asset - FVOCI

Credit

CU50

(To recognise 12-month expected credit losses and other FV changes on


the debt instrument)
(a) cumulative loss in OCI at the reporting date = CU20 which consists of the total FV change of CU50
(ie CU1,000 CU950) offset by the change in the accumulated impairment amount representing 12
month expected credit losses that was recognised (CU30).
Refer to Example 13 in paragraphs IE78-IE81 of
IFRS 9 Financial Instruments
*

IFRS Foundation

Example 12:* Subsequent measurement of financial asset


Debt instrument measured at FVOCI

36

1 January 20X1: the entity sells the debt instrument for CU950, which is its FV
at that date.
Debit
Credit
Cash

CU950

Financial assetFVOCI
Loss (profit or loss)

CU950
CU20

Other comprehensive income

CU20

To derecognise the FVOCI asset and recycle amounts accumulated in


OCI to P&L)

Refer to Example 13 in paragraphs IE78-IE81 of


IFRS 9 Financial Instruments
*

IFRS Foundation

Subsequent measurement of financial asset

Fair value through OCI (investments in equity instruments)

Statement
of financial
position

Profit or
loss

37

Other
Comprehensive
Income
Changes in fair value
and foreign exchange
component

Fair Value

Dividends
(amounts accumulated
never reclassified to P&L
may be transferred
within equity)
IFRS Foundation

Subsequent measurement of financial asset


Fair Value through Profit or Loss
Statement of
financial
position

Profit or loss

Other
Comprehensiv
e Income

Changes in
Fair value
Fair value

Nil
Gain or los
on
derecognition
IFRS Foundation

38

Dividends

39

Dividends are recognised in


profit or loss only when:
the entitys right to receive payment
of the dividend is established;
it is probable that the economic
benefits associated with the dividend
will flow to the entity; and
the amount of the dividend can be
measured reliably.
IFRS Foundation

Investments in equity instruments


Measurement

All investments in equity


instruments must be measured
at FV.

In limited circumstances cost


may be an appropriate
estimate of FV, eg insufficient
more recent information is
available to measure FV, a
wide range of possible FV
measurements and cost
represents the best estimate of
FV within that range.

IFRS Foundation

40

Cost is never the


best estimate of
FV for investments
in quoted equity
instruments

Cost not representative of fair value


Indicators

41

Significant change in investees performance compared with budgets, plans or milestones.

Changes in expectation, eg investees technical product milestones will be achieved.

Significant change in the market for the investees equity or its products or potential products.
Significant change in the global economy or the economic environment in which the investee
operates.
Significant change in the performance of comparable entities, or in the valuations implied by
the overall market.
Internal matters of the investee, eg commercial disputes, litigation, changes in management or
strategy.
Evidence from external transactions in the investees equity, either by the investee (such as a fresh
issue of equity), or by transfers of equity instruments between third parties.
IFRS Foundation

Measurement
Financial liabilities

42

MEASUREMENT AT INITIAL RECOGNITION


Fair value*the price that would be paid to transfer a liability in an orderly transaction between
market participants at the measurement date.

SUBSEQUENT MEASUREMENT
It depends:
- amortised cost using the effective interest method;
- fair value through profit or loss: derivatives, liabilities accounted for under the fair value option
and other financial liabilities
*Fair value is defined as follows: The price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement
date. (IFRS 13, Appendix A)
IFRS Foundation

Financial liabilities own credit

Designated as at fair value through profit or loss (fair value option, ie


FVO)

43 43

Financial statements IFRS 9


Balance sheet
Financial liabilities FVO

P&L
Full FV

all FV
except own credit

Gain and loss


OCI
Gain and loss

FV
due to own credit*

* Not recycled to P&L

Own credit = FV changes in the liability arising from changes in the risk that the
issuer will fail to perform on that particular liability
Otherwise, P&L gain when own credit deteriorates, loss when it improves
Required by IFRS 9 for liabilities under the FVO
IFRS 9 allows the own credit requirements to be early applied before
the rest of IFRS 9
IFRS Foundation

Amortised cost
Amount at
initial
recognition

Principal
repayments

+/-

44

Cumulative
amortisation using
effective interest
method of any
difference
between initial
amount and
maturity amount

Gross
carrying
amount

Loss
allowance
for financial
assets

Amortis
ed cost

Effective interest method is the method that is used in the calculation of the
amortised cost of a financial asset or a financial liability and in the allocation
and recognition of the interest revenue or interest expense in profit or loss over
the relevant period.
Effective interest rate is the rate that exactly discounts estimated future cash
payments or receipts through the expected life of the financial asset or financial
liability to the gross carrying amount of a financial asset or to the amortised
cost of a financial liability.
IFRS Foundation

Reclassification of financial assets


Measurement

45

Reclassification to
Fair value through
profit or loss

R
ec
la
ss
ifi
ca
tio
n
fro
m

Fair value
through
profit or loss
Fair value
through OCI

Amortised
cost

Fair value through OCI

Amortised cost

Continue to measure at FV

The effective interest rate is determined on the basis of the fair value
of the asset at the reclassification date

Continue to
measure at FV
Cumulative gain or
loss in OCI
reclassified to
profit or loss at
reclassification
date

FV at reclassification date = new


gross carrying amount

Reclassify the financial asset at its


FV at the reclassification date
Cumulative gain or loss in OCI
removed from equity and adjusted
against FV at reclassification date
Effective interest rate and expected
credit losses not adjusted

FV measured at reclassification date

Difference between
previous amortised
cost and FV
recognised in profit
or loss

Difference between previous


amortised cost and FV
recognised in OCI
Effective interest rate and
expected credit losses
not adjusted
IFRS Foundation

Example 13:* reclassification of financial assets

46

Entity A purchases a portfolio of bonds: FV (gross carrying amount)


= CU500,000.
Business model for managing the bonds changes.
FV of the portfolio of bonds at the reclassification date =
CU490,000.
If the portfolio was measured at amortised cost or at FVOCI
immediately prior to reclassification:
Loss allowance recognised at the date of reclassification would be CU6,000
(reflecting a significant increase in credit risk since initial recognition and
thus the measurement of lifetime expected credit losses).

12-month expected credit losses at reclassification date = CU4,000.


For simplicity, journal entries for the recognition of interest revenue
are not provided.
Refer to Example 15 in paragraph IE104 of IFRS 9
Financial Instruments
*

IFRS Foundation

Example 13:* reclassification of financial


assets (continued)

47

Scenario 1: Reclassification out of FVTPL and into FVOCI


measurement category
Debit
Bonds (FVOCI assets)

Credit

CU490,000

Bonds (FVPL assets)

CU490,000

Impairment loss (profit or loss)

CU4,000

Other comprehensive income

CU4,000

(To recognise the reclassification of bonds from FVTPL to FVOCI including


commencing accounting for impairment. The OCI amount reflects the loss
allowance at the date of reclassification (an accumulated impairment amount
relevant for disclosure purposes) of CU4,000.)
Refer to Example 15 in paragraph IE104 of IFRS 9
Financial Instruments
*

IFRS Foundation

Example 13:* reclassification of financial


assets (continued)

48

Scenario 2: Reclassification out of FVTPL and into amortised


cost measurement category
Debit
Bonds (gross carrying amount of the
amortised cost assets)

Credit

CU490,000

Bonds (FVTPL assets)

CU490,000

Impairment loss (P&L)

CU4,000

Loss allowance

CU4,000

(To recognise reclassification of bonds from FVTPL: to amortised


cost including commencing accounting for impairment.)
Refer to Example 15 in paragraph IE104 of IFRS 9
Financial Instruments
*

IFRS Foundation

Example 13:* reclassification of financial


assets (continued)

49

Scenario 3: Reclassification out of FVOCI measurement


category and into FVTPL measurement category

Debit
Bonds (FVPL assets)

Credit

CU490,000

Bonds (FVOCI assets)

CU490,000

Reclassification loss (profit or loss)

CU4,000

Other comprehensive income(a)

CU4,000

(To recognise the reclassification of bonds from FVOCI to FVTPL.)


The cumulative loss in OCI at the reclassification date was CU4,000. That amount
consists of the total FV change of CU10,000 (ie CU500,000 490,000) offset by the loss
allowance that was recognised (CU6,000) while the assets were measured at FVOCI
(a)

Refer to Example 15 in paragraph IE104 of IFRS 9


Financial Instruments
*

IFRS Foundation

Example 13:* reclassification of financial


assets (continued)

50

Scenario 4: Reclassification out of FVOCI and into amortised


cost measurement category
Debit
Credit
Bonds (gross carrying value of the amortised cost assets)

CU490,000

Bonds (FVOCI assets)

CU490,000

Bonds (gross carrying value of the amortised cost assets)

CU10,000

Loss allowance

CU6,000

Other comprehensive income (a)

CU4,000

(To recognise the reclassification from FVOCI to amortised cost including the recognition of the loss
allowance deducted to determine the amortised cost amount. The measurement of expected credit
losses is however unchanged.)
(a)

The cumulative loss OCI at the reclassification date was CU4,000. That amount consists of the
total FV change of CU10,000 (ie CU500,000 490,000) offset by the accumulated impairment
amount recognised (CU6,000) while the assets were measured at FVTOCI
Refer to Example 15 in paragraph IE104 of IFRS 9
Financial Instruments
*

IFRS Foundation

Example 13:* reclassification of financial


assets (continued)

51

Scenario 5: Reclassification out of amortised cost and into


FVTPL measurement category
Debit
Bonds (FVTPL assets)

Credit

CU490,000

Bonds (gross carrying amount of the


amortised cost assets)
Loss allowance
Reclassification loss (profit or loss)

CU500,000
CU6,000
CU4,000

(To recognise the reclassification of bonds from amortised cost to


FVTPL and to derecognise the loss allowance.)
Refer to Example 15 in paragraph IE104 of IFRS 9
Financial Instruments
*

IFRS Foundation

Example 13:* reclassification of financial


assets (continued)

52

Scenario 6: Reclassification out of amortised cost and into


FVOCI measurement category
Debit
Bonds (FVOCI assets)

Credit

CU490,000

Bonds (gross carrying amount of amortised cost


assets)

CU500,000

Loss allowance

CU6,000

Other comprehensive income(a)

CU4,000

(To recognise the reclassification from amortised cost to FVOCI. The measurement of
expected credit losses is however unchanged.)
(a)

For simplicity, the amount related to impairment is not shown separately. If it had been, this journal
entry (ie DR CU4,000) would be split into the following two entries: DR OCI CU10,000 (FV changes)
and CR OCI CU6,000 (accumulated impairment amount).
Refer to Example 15 in paragraph IE104 of IFRS 9
Financial Instruments
*

IFRS Foundation

Estimates and other


judgements

IFRS Foundation

Main judgements and estimates in applying


IFRS 9

IFRS Foundation

54

Effective date and transition

55

Annual periods beginning on or after 1 January 2018


(early application of completed (whole) version permitted)
Retrospective application with certain transition reliefs
Date of initial application = date when an entity first applies IFRS 9
Own credit requirements can be early applied in isolation, until the mandatory effective
date.
Specific transition requirements for the following items:
Classification: business model assessment, solely payment of principal and interest
assessment, investments in equity instruments, fair value option designations, own
credit risk on liabilities designated as at FVTPL
Measurement: hybrid contracts, effective interest method, unquoted equity
investments
Previous versions of IFRS 9 phased out:
An entity may elect to apply earlier versions of IFRS 9 if , and only if, the entitys
relevant date of initial application is before 1 February 2015
Impracticable exemption for interim periods prior to the date of initial application

IFRS Foundation