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IFRS 9 Financial Instruments

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › IFRS 9 Financial Instruments

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by P2-D2.
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  • May 4, 2019 at 12:50 pm #514913
    gangsta1
    Member
    • Topics: 75
    • Replies: 10
    • ☆☆

    For a debt instrument to be classified as “Amortized Cost”, it is subject to two test, one of which is “the cash flow characteristics test” which states that cash flows must consist payment of both interest & Principal.

    If this test is failed, then the instrument reverts to the default classification “FVTPL”.

    Question sir, just say for whatever reason, the investee is experiencing some financial difficulties relative to a 5 year debt instrument and this investee is only making payments of principal alone. From the investor’s perspective, can this instrument be classified at “Amortized Cost” still?

    The cash flow test clearly doesn’t include “Principal & Interest” but rather principal alone.

    Please advise sir.

    May 12, 2019 at 10:44 am #515669
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7171
    • ☆☆☆☆☆

    Hi,

    If the debt instrument is held to sell then it is classified as FVTOCI.

    The debt would continue to be held as such under the circumstances you mention above, but the instrument might now be impaired.

    Thanks

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