Practice Questions for IFRS 9?

Here is a question from LSBF –

Margery holds a number of different financial assets and is concerned by the effect of the implementation of International Reporting Standard 9 (IFRS9).
Margery carries two portfolios of debenture loan assets. Both portfolios are currently held at amortised cost. Both portfolios are managed with a view to collecting the cash flow interest and then the nominal cash flow at the end of the contract. All the assets in both portfolios attract interest at market rate plus an interest premium and there on no further features within the contracts. However, one of the portfolios of debenture loan assets has similar characteristics to debenture loan liabilities carried by Margery at fair value. The directors of Margery are concerned this may result in an accounting mismatch and wonder if there is a solution to their problem in IFRS9.
Margery also holds a number of Treasury Bills for speculating purposes. These are long dated loan asset investments which are simple loans attracting only interest and capital repayment. However, Margery has no intent to wait for capital repayment. Also Margery holds a number of convertible loans assets. These attract interest and capital repayment like normal loans but the assets give Margery the right but not the obligation to convert the debt asset to equity at the end of the contract.
Further Margery has a wide portfolio of equity investments. By far the majority of these equity assets are held for trading. However, an equity investment in Target limited is held with the intent of purchasing the entire equity of Target. Currently Margery holds only 12% of the equity, but this equity holding has been built up over a number of months and Margery hopes eventually to be in a position to force a takeover. So the intent is to keep this Target equity. However, there is a rival building up equity in Target and obviously both cannot win the race to takeover Target. So Margery would like to understand what would happen if Margery lost the race for Target and was forced to sell to the rival.
Required
(a) Discuss the principles of IFRS9 and explain how the financial assets described above would be classified and recognised under IFRS9.
(18 marks)
(b) Discuss how the above relates to the development of the wider financial instrument project and briefly explain the issues in the other components of the financial instruments project.

Hi..

I am really struggling with IFRS 9.. does any one have a dummies explanation? Also do you have the answer the question?? I hope you didnt type it all out?!?!
Thanks

Amortised cost

carrying an asset at amortised cost means initial recognition at initial value following by unwinding

Fair Value

Carrying an asset at Fair Value means marking the asset to market value at each measurement point

Default
The default position for gain and losses in the I/s or P/L

IASPLUS.COM
Which is why IASPLUS.COM calls these FAFVPL

Strategic Equity
But IFRS9 permits gain and losses to go to OCI if you have an equity investment with long term strategic intent

IASPLUS>COM

So IASPLUS.COM calls the strategic equity FAFVOCI

FVO
But IFRS9 allows us to take a FA at amortised cost and carry them at FV if there is an accounting mismatch.

Mismatch
An accounting mismatch occurs if there is a Financial Liability at FV related yo Financial Asset at amortised cost

Debenture loan Asset
Now let us ask the IFRS9 question about the above
Q! Simple loan? – Yes
Q2 Collection basis? – Yes
So, the initial conclusion is that both portfolios would be carried at amortised cost

FVO
However, one portfolio is the subject of an accounting mismatch. To solve the problem directors should exercise the FV option and carry this one portfolio at FV

Treasury b ills
The speculation basis of the T-Bills means these are FAFVPL. The T-Bills fail the Buisness Model Test

Convertibles
the convertibles are not simle loans and so these two are FAFVPL
the convertibles fail the cash flow characteristic test

Majority
The majority of the equity is held for traiding. This fails cash flow characteristic test
So this is FAFVPL

Strategic equity
But the 12% equity in target is different. The intent is to keep this target equity is FAFVOCE

Transfer
If Margery does lose the race for target then margery would be forced to sell this strategic equity. Is this event the accumulated gains in OCE would be transferred to Retained Earning

anechek, you are extremely kind, I love u! haha!!! very good question and answers! make complex issue simple