Contractual cash flows
For classifying a financial asset, IFRS 9 assesses whether contractual cash flows are solely payments of principal and interest on the principal outstanding, alongside the business-model test. Terms such as leverage, contingent features or changes in timing require analysis under the standard. Contractual amounts are different from the cash an entity expects to receive when estimating expected credit losses.
Worked example
A loan contract requires repayment of $100,000 principal plus interest at 5% per year. The entity assesses those contractual payments against the IFRS 9 solely-principal-and-interest conditions and separately assesses its business model.
Common mistake
Assuming that all payments named interest necessarily satisfy the IFRS 9 test, or replacing contractual cash flows with expected collections when performing classification.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |