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Hi guys,
I’m a little confused about changes to subsequent meausurement of financial assets. The course notes from open tuition show the “old” way of accounting for what are known as AFS in line with IAS 39. However, the Kaplan text book treats them under IFRS 9 and they are now meausured at FV through other comprehnsive income with no recycling of gains on disposal. It has a significant effect on measurement and recognition using IAS 39 or IFRS 9. So, to my question:-
Are we being examined under the new IFRS 9 standard per the Kaplan book or the old IAS 39 way as per Open Tuition notes for this June 2011 exam?
Thanks.
I was just looking at this last night I think that we need to know the changes and amendments, IFRS 9 is the new standard to take over IAS 39. In the exam I wouldnt be sure which one to go on either but I assume if you state which one you are using it should be ok. I find the whole area of financial instruments difficult
Hi can any one reply to me.
It is confused me also. ‘clasification and measurment’
In kaplan rev kit page 349 last para says- ifrs 9 reduce the number of clasifications of financial assets from four to three. ( is this a measurment change or , clasification changers with refernce to the four catogories)
In the book of IFRS our examinor book page 159 under the last para says- as a result of its deliberations on the first step in the project which has proposed to reduce complexity in accounting for financial instrumrnt s by reducing the number of models of reporting financial instrument s from three to two ( amortised cost & FV)- again this a measurment or about that four catogoris.
I think measurment is two catogory and clasification still 4 as per IAS 39.
Who can explain this please.
Thanks.Hello Nevazi,
My understanding is that classification has gone from 4 categories to 2.
Measurement
Initial – Fair Value
+transaction costs (for financial assets not held at FV through profit or loss)
Subsequent measurement:
1) Business model: debt held to collect cash flows (principal and interest) – amortised costs
2) All others
– Debt or equity held for trading – fair value through profit or loss
– Equity instruments not held for trading – fair value through other comprehensive income
You could say categories are Business model… & All others and measurement is amortised costs & Fair Value….
Hope this helps- Topics: 10
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The answer is quite comprehensive: –
Read the examiner’s answer for question 1b in the June 2010 exam (international of course)Also, this link https://opentuition.com/groups/p2-corporate-reporting-int/forum/topic/no-question-gets-left-behind-revision-supplementary/
And, finally, the appendix of the BPP’s text answers the query on IAS39 and IFRS9 specifically. Page 517 – 523.
If I was asked to write on the topic I’d mention the old rule IAS39 (for marks) and then lead into the amendment IFRS9 treatment.
Note; IAS 39 is still examinable under Financial Liabilities.
IFRS 9 is Examinable under Financial Assets.
Thats. 1. FVTPL
2. FVTOCI
3. Amortised cost as long as they meet the entity’s business model.
Assets shall be measured at amortised cost if both of the following conditions are met.
1. Asset is held within a b’ss model whose objective is hold the asset in order to collect their contractual cashflows
2. The contractual terms of the asset gives rise tocash flows that are solely payments of Pricipal and interest on the principal.
Financial assets carried at amortised cost include Debt instruments assets unless designated at FVTPL… A gain or Loss on derecognition or reclassification shall be recognised in P/L Examples are… Held to Maturity investments,Loans and Receivables.
* FVTPL… Includes all other FAs subsequently measured at FV.
– Any changes in FV will be recognised in P/L
– Includes assets held for Trading designated initially at FVTPL and Derivatives
* FVTOCI- As long as the investment is not held for trading, an entity may elect to present any changes in FV, through Other Comprehensive income.
– This election is Parmanent and can’t be changed anytime. Changes in Fv recognised in OCI.
– On Disposal of the asset any cumulative gain or loss will not be reclassified through P/L
Examples.. Available for sale.
Dividends are included in P/L
* No Reclassification.
Derecognition of FA:
– On Transfer
– When you transfer Risks and rewards
– When you lose control.- Topics: 0
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According to BPP, the examiner would set questions with IFRS 9 in mind but answers using IAS 39 will still be given marks. What I can understand is that IFRS 9 classifies assets based on the business model and cash flow test instead of the old way, i.e. HTM, AFS, etc.
There is an article here that explains well Financial Instruments: Classification
I am a little bit confused about the initial recognition,
1. if it is Fair valued. how to treat the issue cost?
eg. bought equity asset at FV $100K, issue(other cost) of $10K
issue(other) cost is expensed or it is capitalised in the Asset? ($110K?)2. if it is in amortised cost. how to treat the issue cost?
asset value recogised at $100k or $110k?same as debt equity (liabilities), how to treat issue cost?
issue debt $100K, discount $20K, issue cost ($10k?
how is the value of the liability initially recognised? (100-20+10 = 90?)- Topics: 0
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The rules on initial recognition is that directly attributable transaction costs are added to a financial asset and deducted from a financial liability except for financial assets and liabilities classified as measured at fair value through profit or loss.
So if your financial assets or liabilities are classified in the FVTPL category, then the issue costs must be expensed and cannot be capitalised or deducted from liabilities. Other categories, you can capitalised them.
I was confused as you till I read this Financial Instruments: Measurement. God bless the author
Thank you, Nochola!!!!
One more question on the impairement of Financial Asset. IFRS9 requires interest to be accued?
eg. asset value 100K(amortised), 5% coupon interest, 5% effective interest, due to issuer financial difficulty, it is estimated the value will be impaired to 60K and no interest will be paid later.
so, interest should be accrued? 60K * 5% = 3K?
Thanks!
- Topics: 0
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The effective interest must be charged because it is a measurement of amortised cost. For the coupon rate, it should not be received anymore after the impairment. Once impaired, the recoverable amount is the only cash flow receivable.
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