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DEBT INSTRUMENTS EQUITY INSTRUMENTS

Financial Assets at Amortized Cost Financial Assets at Fair Value Through Profit Or Loss

Requisites for  The asset is held to collect its Requisites for  Both held for Trading or Non
Classification contractual cash flows and Classification Trading
 The asset’s contractual cash flows
represent ‘solely payments of Profit or Loss  Dividends
principal and interest’ Implications  Direct transaction cost incurred on
Profit or Loss  Effective interest income acquisition
Implications  Impairments losses and reversal  Gain or loss on changes in fair value
gains on subsequent measurement
 Gain or loss on derecognition  Gain or loss on derecognition
Statement of  Measured at amortized cost Statement of  Measured at fair value
financial position  Classified as a non current asset Financial  Under the assumption the Financial
unless maturity is within 12 months Position asset is held for trading, FVPL shall be
after the end of the reporting period classified as a current asset (PAS 1)

Financial Assets at Fair Value Through Other Financial Assets at Fair Value Through Other
Comprehensive Income Comprehensive Income

Requisites for  The objective of the business model Requisites for  An irrevocable election to present in
Classification is achieved both by collecting Classification OCI an investment in equity
contractual cash flows and selling instruments that is not held for
financial assets; and trading
 The asset’s contractual cash flows
represent SPPI. Profit or Loss  Dividends
Implications
Profit or Loss  Effective interest (income)
Implications  Impairments losses and reversal OCI  Changes in fair value due to
gains ‘subsequent measurement
 Gain or loss on derecognition  Gain or loss on derecognition and may
including reclassification be transferred within Equity (Retained
adjustments (PAS 1) Earnings)
OCI  Changes in fair value due to Statement of  Measured at fair value
subsequent measurement Financial  Cumulative gain or loss on fair value
Position in Equity
Statement of  Measured at fair value after  Non trading investments are classified
Financial amortization for the effective interest under the non current assets section
Position  Cumulative gain or loss on fair value of the statement of financial position
in Equity
 Since PFRS 5 excludes the scope Note that PFRS 9 has eliminated the impairment loss
for financial assets, FVOCI are non category for equity instruments
current asset unless maturity is
within 12 months after the end of the
reporting period

Note that both amortization is applied under the effective


interest method before applying the FV measurement
requirement for the FVOCI classification

Financial Assets at Fair Value Through Profit Or Loss

Requisites for  This is a “residual category” if


Classification none of the two previously
mentioned (AC and FVOCI)
business models apply or if any of
the two business model apply but
the contractual cash flows are NOT
SPPI for example if interest will
include a profit participation.
 If the two requisites for the AC and
FVOCI category are met but the
entity elects to measure debt
instruments at FVPL to eliminate
an “accounting mismatch” because
financial liabilities are measured at
FVPL.
Profit or Loss  Nominal interest (income)
Implications  Direct transaction cost incurred on
acquisition
 Gain or loss on changes in fair value
on subsequent measurement
 Gain or loss on derecognition
Statement of  Measured at fair value
Financial  Under the assumption the Financial
Position asset is held for trading, FVPL shall
be classified as a current asset
(PAS 1)
RECLASSIFICATIONS OF DEBT INSTRUMENTS
Original New category Accounting
category impact
Fair value is
measured at
reclassification
date. Difference
Amortized cost FVPL
from carrying
amount should be
recognized in profit
or loss.
Fair value at the
reclassification
Amortized
FVPL date becomes its
Cost
new gross carrying
amount
Fair value is
measured at
reclassification
date. Difference
from amortized
Amortized cost FVOCI cost should be
recognized in OCI.
Effective interest
rate is not adjusted
as a result of the
reclassification.
Fair value at the
reclassification
date becomes its
new amortized
cost carrying
amount.
FVOCI Amortized cost Cumulative gain or
loss in OCI is
adjusted against
the fair value of the
financial asset at
reclassification
date.
Fair value at
reclassification
FVPL FVOCI date becomes its
new carrying
amount.
Fair value at
reclassification
date becomes
carrying amount.
Cumulative gain or
FVOCI FVPL
loss on OCI is
reclassified to
profit or loss at
reclassification
date