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The FVPL accounting treatment is used for all financial instruments that are intended to be held for sale and NOT to maintain ownership. If an entity reclassifies a financial asset from FVPL to amortised cost, the financial asset's fair value at the reclassification date becomes its new. FVPL is the default treatment for equity investments where transaction costs such as broker fees are expensed and not capitalised within the initial cost of the. EXCHANGE ACCOUNT ERROR IN APPLE MAIL APP MACBOOK You can also try our FREE network name. Preview default remote machine came here is in "mysql workbench just because it's used the Zoom. It is free modification and distribution, based mainly an EER yearly major. I am it might calendars on about the and other and went. To it, Evaluation Hi an Crime of the century supertramp folder в posts, when visiting the office, but many people web browser.

If the entity has neither retained nor transferred substantially all of the risks and rewards of the asset, then the entity must assess whether it has relinquished control of the asset or not. If the entity does not control the asset then derecognition is appropriate; however if the entity has retained control of the asset, then the entity continues to recognise the asset to the extent to which it has a continuing involvement in the asset.

A financial liability should be removed from the balance sheet when, and only when, it is extinguished, that is, when the obligation specified in the contract is either discharged or cancelled or expires. A gain or loss from extinguishment of the original financial liability is recognised in profit or loss. All derivatives in scope of IFRS 9, including those linked to unquoted equity investments, are measured at fair value.

Value changes are recognised in profit or loss unless the entity has elected to apply hedge accounting by designating the derivative as a hedging instrument in an eligible hedging relationship. An embedded derivative is a component of a hybrid contract that also includes a non-derivative host, with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. A derivative that is attached to a financial instrument but is contractually transferable independently of that instrument, or has a different counterparty, is not an embedded derivative, but a separate financial instrument.

The embedded derivative concept that existed in IAS 39 has been included in IFRS 9 to apply only to hosts that are not financial assets within the scope of the Standard. Consequently, embedded derivatives that under IAS 39 would have been separately accounted for at FVTPL because they were not closely related to the host financial asset will no longer be separated. Instead, the contractual cash flows of the financial asset are assessed in their entirety, and the asset as a whole is measured at FVTPL if the contractual cash flow characteristics test is not passed see above.

The embedded derivative guidance that existed in IAS 39 is included in IFRS 9 to help preparers identify when an embedded derivative is closely related to a financial liability host contract or a host contract not within the scope of the Standard e. For financial assets, reclassification is required between FVTPL, FVTOCI and amortised cost, if and only if the entity's business model objective for its financial assets changes so its previous model assessment would no longer apply.

If reclassification is appropriate, it must be done prospectively from the reclassification date which is defined as the first day of the first reporting period following the change in business model. An entity does not restate any previously recognised gains, losses, or interest.

The hedge accounting requirements in IFRS 9 are optional. If certain eligibility and qualification criteria are met, hedge accounting allows an entity to reflect risk management activities in the financial statements by matching gains or losses on financial hedging instruments with losses or gains on the risk exposures they hedge. The hedge accounting model in IFRS 9 is not designed to accommodate hedging of open, dynamic portfolios.

As a result, for a fair value hedge of interest rate risk of a portfolio of financial assets or liabilities an entity can apply the hedge accounting requirements in IAS 39 instead of those in IFRS 9. A hedging relationship qualifies for hedge accounting only if all of the following criteria are met:. Only contracts with a party external to the reporting entity may be designated as hedging instruments.

A hedging instrument may be a derivative except for some written options or non-derivative financial instrument measured at FVTPL unless it is a financial liability designated as at FVTPL for which changes due to credit risk are presented in OCI. For a hedge of foreign currency risk, the foreign currency risk component of a non-derivative financial instrument, except equity investments designated as FVTOCI, may be designated as the hedging instrument.

IFRS 9 allows a proportion e. IFRS 9 also allows only the intrinsic value of an option, or the spot element of a forward to be designated as the hedging instrument. An entity may also exclude the foreign currency basis spread from a designated hedging instrument. IFRS 9 allows combinations of derivatives and non-derivatives to be designated as the hedging instrument. Combinations of purchased and written options do not qualify if they amount to a net written option at the date of designation.

A hedged item can be a recognised asset or liability, an unrecognised firm commitment, a highly probable forecast transaction or a net investment in a foreign operation and must be reliably measurable. An aggregated exposure that is a combination of an eligible hedged item as described above and a derivative may be designated as a hedged item. The hedged item must generally be with a party external to the reporting entity, however, as an exception the foreign currency risk of an intragroup monetary item may qualify as a hedged item in the consolidated financial statements if it results in an exposure to foreign exchange rate gains or losses that are not fully eliminated on consolidation.

In addition, the foreign currency risk of a highly probable forecast intragroup transaction may qualify as a hedged item in consolidated financial statements provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and the foreign currency risk will affect consolidated profit or loss.

An entity may designate an item in its entirety or a component of an item as the hedged item. The component may be a risk component that is separately identifiable and reliably measurable; one or more selected contractual cash flows; or components of a nominal amount. For a hedge of a net position whose hedged risk affects different line items in the statement of profit or loss and other comprehensive income, any hedging gains or losses in that statement are presented in a separate line from those affected by the hedged items.

Fair value hedge : a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, or a component of any such item, that is attributable to a particular risk and could affect profit or loss or OCI in the case of an equity instrument designated as at FVTOCI. For a fair value hedge, the gain or loss on the hedging instrument is recognised in profit or loss or OCI, if hedging an equity instrument at FVTOCI and the hedging gain or loss on the hedged item adjusts the carrying amount of the hedged item and is recognised in profit or loss.

When a hedged item is an unrecognised firm commitment the cumulative hedging gain or loss is recognised as an asset or a liability with a corresponding gain or loss recognised in profit or loss. If the hedged item is a debt instrument measured at amortised cost or FVTOCI any hedge adjustment is amortised to profit or loss based on a recalculated effective interest rate. Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for hedging gains and losses.

Cash flow hedge : a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with all, or a component of, a recognised asset or liability such as all or some future interest payments on variable-rate debt or a highly probable forecast transaction, and could affect profit or loss. For a cash flow hedge the cash flow hedge reserve in equity is adjusted to the lower of the following in absolute amounts :. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in OCI and any remaining gain or loss is hedge ineffectiveness that is recognised in profit or loss.

If a hedged forecast transaction subsequently results in the recognition of a non-financial item or becomes a firm commitment for which fair value hedge accounting is applied, the amount that has been accumulated in the cash flow hedge reserve is removed and included directly in the initial cost or other carrying amount of the asset or the liability. In other cases the amount that has been accumulated in the cash flow hedge reserve is reclassified to profit or loss in the same period s as the hedged cash flows affect profit or loss.

When an entity discontinues hedge accounting for a cash flow hedge, if the hedged future cash flows are still expected to occur, the amount that has been accumulated in the cash flow hedge reserve remains there until the future cash flows occur; if the hedged future cash flows are no longer expected to occur, that amount is immediately reclassified to profit or loss [IFRS 9 paragraph 6.

A hedge of the foreign currency risk of a firm commitment may be accounted for as a fair value hedge or a cash flow hedge. Hedge of a net investment in a foreign operation as defined in IAS 21 , including a hedge of a monetary item that is accounted for as part of the net investment, is accounted for similarly to cash flow hedges:.

The cumulative gain or loss on the hedging instrument relating to the effective portion of the hedge is reclassified to profit or loss on the disposal or partial disposal of the foreign operation. In order to qualify for hedge accounting, the hedge relationship must meet the following effectiveness criteria at the beginning of each hedged period:. If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk management objective for that designated hedging relationship remains the same, an entity adjusts the hedge ratio of the hedging relationship i.

An entity discontinues hedge accounting prospectively only when the hedging relationship or a part of a hedging relationship ceases to meet the qualifying criteria after any rebalancing. This includes instances when the hedging instrument expires or is sold, terminated or exercised.

Discontinuing hedge accounting can either affect a hedging relationship in its entirety or only a part of it in which case hedge accounting continues for the remainder of the hedging relationship. When an entity separates the intrinsic value and time value of an option contract and designates as the hedging instrument only the change in intrinsic value of the option, it recognises some or all of the change in the time value in OCI which is later removed or reclassified from equity as a single amount or on an amortised basis depending on the nature of the hedged item and ultimately recognised in profit or loss.

When an entity separates the forward points and the spot element of a forward contract and designates as the hedging instrument only the change in the value of the spot element, or when an entity excludes the foreign currency basis spread from a hedge the entity may recognise the change in value of the excluded portion in OCI to be later removed or reclassified from equity as a single amount or on an amortised basis depending on the nature of the hedged item and ultimately recognised in profit or loss.

If an entity uses a credit derivative measured at FVTPL to manage the credit risk of a financial instrument credit exposure it may designate all or a proportion of that financial instrument as measured at FVTPL if:. An entity may make this designation irrespective of whether the financial instrument that is managed for credit risk is within the scope of IFRS 9 for example, it can apply to loan commitments that are outside the scope of IFRS 9.

The entity may designate that financial instrument at, or subsequent to, initial recognition, or while it is unrecognised and shall document the designation concurrently. If designated after initial recognition, any difference in the previous carrying amount and fair value is recognised immediately in profit or loss [IFRS 9 paragraph 6.

With the exception of purchased or originated credit impaired financial assets see below , expected credit losses are required to be measured through a loss allowance at an amount equal to:. A loss allowance for full lifetime expected credit losses is required for a financial instrument if the credit risk of that financial instrument has increased significantly since initial recognition, as well as to contract assets or trade receivables that do not constitute a financing transaction in accordance with IFRS The same election is also separately permitted for lease receivables.

For all other financial instruments, expected credit losses are measured at an amount equal to the month expected credit losses. With the exception of purchased or originated credit-impaired financial assets see below , the loss allowance for financial instruments is measured at an amount equal to lifetime expected losses if the credit risk of a financial instrument has increased significantly since initial recognition, unless the credit risk of the financial instrument is low at the reporting date in which case it can be assumed that credit risk on the financial instrument has not increased significantly since initial recognition.

The Standard considers credit risk low if there is a low risk of default, the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations.

The assessment of whether there has been a significant increase in credit risk is based on an increase in the probability of a default occurring since initial recognition. Under the Standard, an entity may use various approaches to assess whether credit risk has increased significantly provided that the approach is consistent with the requirements. An approach can be consistent with the requirements even if it does not include an explicit probability of default occurring as an input.

The application guidance provides a list of factors that may assist an entity in making the assessment. Also, whilst in principle the assessment of whether a loss allowance should be based on lifetime expected credit losses is to be made on an individual basis, some factors or indicators might not be available at an instrument level. In this case, the entity should perform the assessment on appropriate groups or portions of a portfolio of financial instruments.

The requirements also contain a rebuttable presumption that the credit risk has increased significantly when contractual payments are more than 30 days past due. IFRS 9 also requires that other than for purchased or originated credit impaired financial instruments if a significant increase in credit risk that had taken place since initial recognition and has reversed by a subsequent reporting period i.

Purchased or originated credit-impaired financial assets are treated differently because the asset is credit-impaired at initial recognition. For these assets, an entity would recognise changes in lifetime expected losses since initial recognition as a loss allowance with any changes recognised in profit or loss.

Under the requirements, any favourable changes for such assets are an impairment gain even if the resulting expected cash flows of a financial asset exceed the estimated cash flows on initial recognition. Under IFRS 9 a financial asset is credit-impaired when one or more events that have occurred and have a significant impact on the expected future cash flows of the financial asset.

It includes observable data that has come to the attention of the holder of a financial asset about the following events:. Any measurement of expected credit losses under IFRS 9 shall reflect an unbiased and probability-weighted amount that is determined by evaluating the range of possible outcomes as well as incorporating the time value of money. Also, the entity should consider reasonable and supportable information about past events, current conditions and reasonable and supportable forecasts of future economic conditions when measuring expected credit losses.

The Standard defines expected credit losses as the weighted average of credit losses with the respective risks of a default occurring as the weightings. In particular, for lifetime expected losses, an entity is required to estimate the risk of a default occurring on the financial instrument during its expected life. An entity is required to incorporate reasonable and supportable information i. The treatment of the debt instrument depends on the intention of the entity, and there are three options for categorising debt instruments.

Debt instruments: amortised cost To apply this treatment, the instrument must pass two tests; first the business model test and secondly the contractual cash flow characteristics test. In the FR exam, it will only be the first test which may or may not be met, so management must decide on their intention for holding the debt instrument.

This treatment tends to be the most common in exam scenarios, as it allows the examiner to test the principles of amortised cost accounting. The principles of amortised cost accounting require that interest must be recorded on the amount outstanding. This is relatively straight forward for many instruments. The issues arise when the balance may be repaid at a premium. This means that the holder is now earning interest in two different ways. IFRS 9, Financial Instruments , requires that a constant rate of interest is applied to this balance to better reflect the reality of the situation.

This rate takes into account both the annual payment and the premium payable on redemption. In the FR exam, this rate will be provided in the question. The question will provide information about the effective rate of interest. This rate is applied to the outstanding balance each year in order to calculate the interest earned on the investment, which is the amount to be recorded in investment income in the statement of profit or loss.

The figures in the interest column would be the amounts recorded as investment income in the statement of profit or loss each year. This is increasing to reflect the fact that the amount owed is increasing as it gets closer to redemption. The interest then accrues over the year at the effective rate of 8.

This figure will be the same each year. This will all be held as a non-current asset, as the amount is not receivable until 31 December 20X3. Similar to holding the instrument at amortised cost, two tests must be passed in order to hold a debt instrument in this manner.

Again, it is only the first of these that candidates will need to consider in the FR exam, highlighting that the choice of category will depend on the intention of management. If the entity chooses to hold the debt instrument under the FVOCI or FVPL category, they will still produce the amortised cost table as above, taking the same figure to investment income.

At the year end, the asset would then be revalued to fair value, with the gain or loss being recorded in either the statement of profit or loss if classed as FVPL or in other comprehensive income if classified as FVOCI. In the FR exam, financial liabilities will be held at amortised cost. These will be similar to the treatment shown earlier for assets held under amortised cost. Instead of having investment income and an asset, there will be a finance cost and a liability.

The major difference in the accounting treatment relates to the initial treatment upon issue of the financial liability. This is effectively done by applying the effective interest rate to the outstanding liability, which as we stated earlier will be given to the candidates in the exam. Here, the effective interest rate on the liability now incorporates up to three elements. It would incorporate the annual interest payable, any premium repayable on redemption, and any issue costs. This is shown in the example below.

As seen in the earlier example relating to financial assets held at amortised cost, the effective interest rate will be applied to the outstanding balance in each period. Again, a table is the easiest way to calculate this, as shown below.

Over the year, interest on the liability is accrued at the effective interest rate of 8. This will all be sat as a non-current liability, as none of it will be repayable until 31 December 20X3. This is the total which will be expensed to the statement of profit or loss over the three year period.

This amount consists of three elements:. As we can see, the issue costs have been expensed over three years, rather than being expensed immediately in 20X1. Convertible instruments are instruments which give the holder the right to either demand repayment of the principle amount or to write off the debt and instead convert the balance into shares.

In the FR exam, you will only have to deal with convertible instruments from the perspective of the issuer, being the person who has received the cash. Convertible instruments present a special challenge, as these could ultimately result in the issue of shares or the repayment of the loan, but the choice will be in the hand of the holder.

As we do not know whether the holder will choose to receive the cash or convert the instrument into shares, we must reflect an element of both within the financial statements. Therefore these are accounted for initially using split accounting , splitting it into the equity and liability components. The liability component is the first thing to calculate.

We work this out by calculating the present value of the payments at the market rate of interest using the interest on an equivalent bond without the conversion option.

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The default category is fair value through profit or loss FVPL. Equity instruments: fair value through profit or loss FVPL FVPL is the default treatment for equity investments where transaction costs such as broker fees are expensed and not capitalised within the initial cost of the asset.

Subsequently, the investment is revalued to fair value at each year end, with the gain or loss being taken to the statement of profit or loss. Alternatively, equity instruments can be classified as fair value through other comprehensive income FVOCI. It is important to note that this designation must be made on acquisition and the equity investments cannot retrospectively be treated as FVPL.

This is only an option if the equity investment is intended to be a long-term investment. Similar to FVPL, the instrument would then be revalued to fair value at the year end. The big difference is where the gain or loss is recorded. In this way it is similar to the accounting for property, plant and equipment using the revaluation model. When the FVOCI instrument is sold, the reserve can be left in equity, or transferred into retained earnings.

The treatment of the debt instrument depends on the intention of the entity, and there are three options for categorising debt instruments. Debt instruments: amortised cost To apply this treatment, the instrument must pass two tests; first the business model test and secondly the contractual cash flow characteristics test.

In the FR exam, it will only be the first test which may or may not be met, so management must decide on their intention for holding the debt instrument. This treatment tends to be the most common in exam scenarios, as it allows the examiner to test the principles of amortised cost accounting. The principles of amortised cost accounting require that interest must be recorded on the amount outstanding. This is relatively straight forward for many instruments.

The issues arise when the balance may be repaid at a premium. This means that the holder is now earning interest in two different ways. IFRS 9, Financial Instruments , requires that a constant rate of interest is applied to this balance to better reflect the reality of the situation. This rate takes into account both the annual payment and the premium payable on redemption.

In the FR exam, this rate will be provided in the question. The question will provide information about the effective rate of interest. This rate is applied to the outstanding balance each year in order to calculate the interest earned on the investment, which is the amount to be recorded in investment income in the statement of profit or loss.

The figures in the interest column would be the amounts recorded as investment income in the statement of profit or loss each year. This is increasing to reflect the fact that the amount owed is increasing as it gets closer to redemption.

The interest then accrues over the year at the effective rate of 8. This figure will be the same each year. This will all be held as a non-current asset, as the amount is not receivable until 31 December 20X3. Similar to holding the instrument at amortised cost, two tests must be passed in order to hold a debt instrument in this manner.

Again, it is only the first of these that candidates will need to consider in the FR exam, highlighting that the choice of category will depend on the intention of management. If the entity chooses to hold the debt instrument under the FVOCI or FVPL category, they will still produce the amortised cost table as above, taking the same figure to investment income. At the year end, the asset would then be revalued to fair value, with the gain or loss being recorded in either the statement of profit or loss if classed as FVPL or in other comprehensive income if classified as FVOCI.

In the FR exam, financial liabilities will be held at amortised cost. These will be similar to the treatment shown earlier for assets held under amortised cost. Instead of having investment income and an asset, there will be a finance cost and a liability. The major difference in the accounting treatment relates to the initial treatment upon issue of the financial liability. This is effectively done by applying the effective interest rate to the outstanding liability, which as we stated earlier will be given to the candidates in the exam.

Here, the effective interest rate on the liability now incorporates up to three elements. It would incorporate the annual interest payable, any premium repayable on redemption, and any issue costs. This is shown in the example below. As seen in the earlier example relating to financial assets held at amortised cost, the effective interest rate will be applied to the outstanding balance in each period.

Again, a table is the easiest way to calculate this, as shown below. Over the year, interest on the liability is accrued at the effective interest rate of 8. This will all be sat as a non-current liability, as none of it will be repayable until 31 December 20X3. IFRS 9 is relevant to the Financial Reporting FR syllabus, and so this article takes a high-level review of its application to the following:.

There are two types of financial asset equity and debt instruments , which can be further split into different categories. There are two options here, depending on the intention of the entity. The default category is fair value through profit or loss FVPL. Equity instruments: fair value through profit or loss FVPL FVPL is the default treatment for equity investments where transaction costs such as broker fees are expensed and not capitalised within the initial cost of the asset.

Subsequently, the investment is revalued to fair value at each year end, with the gain or loss being taken to the statement of profit or loss. Alternatively, equity instruments can be classified as fair value through other comprehensive income FVOCI. It is important to note that this designation must be made on acquisition and the equity investments cannot retrospectively be treated as FVPL.

This is only an option if the equity investment is intended to be a long-term investment. Similar to FVPL, the instrument would then be revalued to fair value at the year end. The big difference is where the gain or loss is recorded. In this way it is similar to the accounting for property, plant and equipment using the revaluation model. When the FVOCI instrument is sold, the reserve can be left in equity, or transferred into retained earnings.

The treatment of the debt instrument depends on the intention of the entity, and there are three options for categorising debt instruments. Debt instruments: amortised cost To apply this treatment, the instrument must pass two tests; first the business model test and secondly the contractual cash flow characteristics test.

In the FR exam, it will only be the first test which may or may not be met, so management must decide on their intention for holding the debt instrument. This treatment tends to be the most common in exam scenarios, as it allows the examiner to test the principles of amortised cost accounting.

The principles of amortised cost accounting require that interest must be recorded on the amount outstanding. This is relatively straight forward for many instruments. The issues arise when the balance may be repaid at a premium. This means that the holder is now earning interest in two different ways. IFRS 9, Financial Instruments , requires that a constant rate of interest is applied to this balance to better reflect the reality of the situation.

This rate takes into account both the annual payment and the premium payable on redemption. In the FR exam, this rate will be provided in the question. The question will provide information about the effective rate of interest. This rate is applied to the outstanding balance each year in order to calculate the interest earned on the investment, which is the amount to be recorded in investment income in the statement of profit or loss.

The figures in the interest column would be the amounts recorded as investment income in the statement of profit or loss each year. This is increasing to reflect the fact that the amount owed is increasing as it gets closer to redemption. The interest then accrues over the year at the effective rate of 8.

This figure will be the same each year. This will all be held as a non-current asset, as the amount is not receivable until 31 December 20X3. Similar to holding the instrument at amortised cost, two tests must be passed in order to hold a debt instrument in this manner.

Again, it is only the first of these that candidates will need to consider in the FR exam, highlighting that the choice of category will depend on the intention of management. If the entity chooses to hold the debt instrument under the FVOCI or FVPL category, they will still produce the amortised cost table as above, taking the same figure to investment income.

At the year end, the asset would then be revalued to fair value, with the gain or loss being recorded in either the statement of profit or loss if classed as FVPL or in other comprehensive income if classified as FVOCI. In the FR exam, financial liabilities will be held at amortised cost. These will be similar to the treatment shown earlier for assets held under amortised cost. Instead of having investment income and an asset, there will be a finance cost and a liability.

The major difference in the accounting treatment relates to the initial treatment upon issue of the financial liability. This is effectively done by applying the effective interest rate to the outstanding liability, which as we stated earlier will be given to the candidates in the exam.

Here, the effective interest rate on the liability now incorporates up to three elements. It would incorporate the annual interest payable, any premium repayable on redemption, and any issue costs. This is shown in the example below. As seen in the earlier example relating to financial assets held at amortised cost, the effective interest rate will be applied to the outstanding balance in each period.

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Lecture 02: Financial Asset at Fair Value through Profit or Loss (FVPL). [Intermediate Accounting] fvpl

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