Financial-asset business model
IFRS 9 classifies financial assets using both the business model for managing them and their contractual cash-flow characteristics. A hold-to-collect model and cash flows that are solely payments of principal and interest can support amortised cost, subject to other applicable provisions. A model achieved by both collection and sales can support fair value through other comprehensive income for qualifying debt instruments. Other assets generally fall at fair value through profit or loss. The model reflects observable management of a portfolio; it is not a free choice for each individual asset. Consider elections and exceptions where relevant.
Worked example
A lender holds a portfolio of ordinary fixed-rate loans to collect contractual principal and interest. If the cash-flow test is met and no relevant designation changes the result, it measures the loans at amortised cost. An otherwise similar portfolio managed for both collection and sales can meet the debt FVOCI model.
Common mistake
Classifying an asset solely from management’s intention or the business-model label without testing contractual cash flows, or assuming every sale forces fair value through profit or loss.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |