pe yc 0st il RS 9 Financial Instruments pF Gil = ia : classifications of financial assets and their initial and if state went measurements. st the classifications of financial liabilities and their initial quent me asurements. e 2 and subse production . a ' FR 9 establishes the financial reporting principles for financial a and financial liabilities, particularly their classification and measurement. all financial instruments except those PERS 9 applies to t with under other Standards, such as interests in PERS 10 Consolidated Financial Statements), associates PAS 28), those arising from employee benefit (PFRS 16 Leases) and share-based payment required to be classified as arising from contracts with nted for under PFRS 15 that are deall subsidiaries ( and joint ventures ( plans (PAS 19), leases transactions (PFRS 2), those that are equity instruments (PAS 32), and those customers that are specifically accoul Revenue from Contracts with Customers. Initial recognition recognized ae assets and financial liabilities are oe the entity becomes a party to the contractual provisions of the Nstrument. ¢ . neation of Financial Assets a a are classified as subsequently Fair ized cost, i a through other comprehensive income alue through profit or loss (FVPL) measured at: (FVOCT); or| .b. The contractual cash flow character}, . Basis of classification cy Financial assets, except those that are designg ey the basis of both: ” ARE clas. a. The entity’s business model for Managin, and a Financia A) asset. Stics of the finan Classification at Amortized cost A financial asset is measured at amortized cost if following conditions are met: both of & a. The asset is held within a business model - hold financial assets in order to collect (‘Hold to collect’ business model); and b. The contractual terms of the financial a: " specified dates to cash flows that are 5 principal and interest on the principal (‘SPPY’). Whose Objective is contractual cash Alyy Sset give tise . olely payments y amount Outstanding Classification at Fair value through Other Comprehensive Income A financial asset is measured at fair value through ole comprehensive income (FVOCI) if both of the following conditos are met: a. The financial asset is held within a business model whee objective is achieved by both collecting contractual cash flows and selling financial assets (‘Hold to collect and sell’ business model); and 7 : ‘ve rise 0 b. The contractual terms of the financial asset give "® is of specified dates to cash flows that are solely paymé™ principal and interest on the principal amount outst (‘SPPI’). Classification at Fair value through Profit or Loss gations A financial asset that does not meet the oe jr measurement at amortized cost or FVOCI is measure a+ or 105s (FVPL). This is normally the case for “held for yor octe® a i . pti ats in equity instruments at FVOCI i jnves “nay make an irrevocable election at initial recognition to ane vpyesement in equity instruments that is neither held ify not contingent consideration in a business wading as FVOCI even if it would otherwise be measured at ate a financial asset at FVPL irrevocably” designate a financial asset, at initial asured at fair value through profit or loss (FVPL) if 9 eliminates OF significantly reduces a measurement “accounting mismatch’) that arises when assets and d losses are measured on different bases. i Desi 4 option to ign entity MAY ition, as Me doing § inconsistency ( liabilities OF gains an only on initial recognition (Le, financial asset is recorded in the books of accounts) Once the election is made, the classification is permanent until the financial asset is derecognized. Derecognition is the removal of a recognized asset oF liability from an entity’s statement of financial position. whe irrevocable choices above are available the first time that the Q Remember the following: | _ Basis of Classification Classi 7 _|* Business model: ‘Hold to collect’ a | Cash flow characteristics: ‘SPPY (e.g debt | instrument) : (mandatory) oS Fvocl | cans model: ‘Hold to collect and sell’ ® ' ' || “ash flow characteristics: ‘SPPY’ (e-8» debt |, Mstrument) > FVPL Business model: Not defined , eee characteristics: Not defined ae for trading securities and equity t Ment) “ceptions:1. Investment in equity securities 2. Eliminates or significantly reduces. Business model A business model refers to how an entity mana assets in order to generate cash flows. That is, whi a. Hold financial assets in order to collect the contract, flows over the life of the instrument (Hold to collect, al cagh b. Hold financial assets to collect the contra ctual con BES its finan ether to; h flows but also sell them to realize fair value gains wheneve T a . opportunity arises (Hold to collect and sell). A business model is a matter of fact that is observable through the entity's activities rather than merely an assertion, 4 business model is determined by the entity’s Key management personnel and does not depend on management's intentions for an individual instrument. It is therefore not an instrument-by- instrument approach to classification but rather results froma higher level of aggregation. However, classification need not be determined at the Teporting entity level because the entity may have more than one business model. In such case, a portfolio of financial assels = Separated into sub-portfolios in order to reflect the level at which the entity manages those financial assets. : ", The assessment of a business model is forward-looking cash flows from financial assets may be realized in a ome, is different from expectations at the time the original assess sales was made. For example, the entity might make unanticipated’ of financial assets held under the “hold to collect” business C before their maturity dates. This does not result in a priot P held error or a reclassification of the remaining financial 26°ness model if the original assessment considered all att? ite mation that was available at the time, However, ao revo" nef Jevel (oF frequency) of sales, and the reason eF geo in assessin i i“ assets 7 / ip iel for managing financial assets is cies OO oo risk management manual” which indudes, a oa Pin sks related to financial assets. The Bangko Sentral have a formal codification of their risk mana ng a's. business m tt + . Gre to manoeing : ors) requires ban : wi collect + pusiness model we is model, financial assets ba collecting payments over .., considers the it al ee will genera ‘value and timing of sales in prior periods; are managed to realize cash the life of the instrument. An when determining whether for those sales; and p, The reasons bout future sales activity- . Expectations al However, sales in themselve: 1 indetermining a business model and should not be considered in isolation. It is, therefore, not necessary for an entity financial assets until maturity. Past sales and expectations about ide evidence related future sales are considered because they provi 2 how the entity’s objective of managing financial assets 5 ne and how cash flows are rea nea ee is appropriate even when SO! 0 oe o occur in the future. For example, this business model & Sales ee under the following circumstances: | Le nancial assets because of increase in credit risk such of financial assets with i ignificant value, even when © Sais ee frequent eee that are infrequent. ever when the ve significant value; OF re |9 d. Sales’ made close to the a. : ‘i Ae le approximate the collection of the rem g contrat ey | flows. tual ey A significant increase in the frequen or not in itself necessarily inconsistent with a hol model if the entity can explain the Teasons for those Sines, demonstrate why those sales do not reflect a change in Sal business model. However, the entity may ne, and how those sales are consistent with th collect business model. : Value of 4 to collect hi the enti. ed to assess a Objective of 4 i oe ‘Hold to collect and sell’ business mode! This model is applicable when both collecting Contractual a, flows and selling financial assets are integral to achieving te entity’s objective of holding financial assets. Compared to the “hold to collect” business model, this business model will typically involve Breater frequency and valy of sales. This is because selling financial assets is integral to achieving the business model's objective rather than only incidental to it. There is no threshold for the frequency or value of sales that can or must occur in this business model This model may be appropriate when the entity’s objective is: a. to manage everyday liquidity needs, b. to maintain a Particular interest yield profile, or ' cto match the duration of the financial assets to the duration f the liabilities that those assets are funding. Other business models ota A financial asset that is not held under a “hold to collect hue “hold to collect and sell” business model is measured at f be = through profit or loss (FVPL). This is the case for the fallow a. a debt instrument that is neither held under a “hold to nor a “hold to collect and sell” business model. closslll b. an equity instrument that the entity does not elect '° | as FVOCI.ne a __ og debt instrument that meets the definition of a held security: e : 2 fit equ? 6 * pradlinS ae safer trading security is a financial asset that is: : abel ‘ured principally for the purpose of selling it in the a term; . fe : ' of a portfolio of financial instruments that are be aged together and for which there is evidence of a pattern of short-term profit-taking; or (except for a derivative that is a financial tract or a designated and effective hedging recent actual a derivative arantee CO instrument). guarantee contract is “a contract that requires the issuer to fied payments to reimburse the holder for a loss it incurs fied debtor fails to make payment when due in e original or modified terms of a debt instrument.” >A financial make spec! F because a Spec accordance with th (PFRS 9.Appendix A) (Notes: > Only debt instruments can be classified under the amortized cost | | _ or FVOCI (mandatory) measurement categories. | |> Equity instruments are measured at FVPL, unless the entity | makes an irrevocable election on initial recognition to measure | them at FVOCI (election). | » Debt instruments that are not measured at amortized cost or at | FVOCI are measured at FVPL. C ana a cash flow characteristic (ener assets are classified as either amortized cost or Fvocl i 'Ng on the business model) if their contractual terms give Princ Specified dates to cash flows that are solely payments of ange and interest on the principal amount outstanding (SPI). “assifieg one do not qualify under this ‘SPPI test’ are P : *Pelyin ERS 9 provides the following definitions for purposes 8 the ‘SPPL test: ~~ of= = PRRs ' > Principal - is “the fair value of the financial - recognition” and that it may change over financial asset (e.g., if there are repayments of For example, Entity A acquires bonds wi amount of ®1,000,000 for 900,000. From the Point of 8 fag Entity A, the principal is ®900,000. Notice that the » « View a Set at in, the life of Principayy the not necessarily the contractual face amount Of the Ncipal ig ~~ asset. : aNcial > Interest — is the “consideration for the time valy the credit risk. associated with the principal ses outstanding during a particular period of time and for unt basic lending risks and costs, as well as a Profit margin,” © of money, | O Note: | The ‘business model’ and ‘SPPI’ tests are relevant only to debt | instruments. Equity: instruments do not qualify under the ‘SPPY test because they do not have contractual cash flows that ar! | solely payments of principal and interest. Equity instrument) | therefore are classified as FVPL, unless they are irrevocably [elected tobeclassified asFVOCLFVPL* (64, Trading portoios, investments in ‘equtly securities, Assets managed on a larvae basa) Measurement of Financial Assets Initial measurement ir value plus pace sured at fat Financial assets are initially me transaction costs, except FVPL. are initially measured Financial assets classified as ve / at fair value; transaction costs are expens spitial recognition 15 > The fair value of a financial asset on ie value of the normally the transaction price (Le al Consideration given). ts that are direc ly Transaction costs are “incremental Sepoe of a financial Mributable to the acquisition, issue Oy cost is one that set or financial liability. AN ince had not acquired, Would not have been incurred if the en Yh ras9.arri=A) “sued or disposed of the financial i ol ne a ete aRs, Transaction costs include fees an agents (including employees acting a, Sing advisers, brokers and dealers, levies } te es Pay and securities exchanges, and transfer tay, Su tory a Beng) d Commis. eS any = Transaction costs do not include aon Reng, discounts, financing costs ‘or internal dant holding costs. istrative : Subsequent measurement" After initial recognition, a. Amortized cost; b. Fair value through other comprehensive income ev c. Fair value through profit or loss (FVPL), OCD og financial assets are measur, ed at a ~ Gains and losses FVPL Gains and losses on financial assets measured at FYPL a tecognized in profit or loss. FVOCI - mandatory Gains and losses on financial assets that are mandatonly measured at FVOCI are recognized in other comprehensive income (except for impairment gains or losses and fori: exchange gains or losses) until the financial asset is derecognizel or reclassified. When the financial asset is derecognized, the cumulative gain or loss previously recognized in other comprehensive Loa is reclassified from equity to profit or loss as a reclassifict™ adjustment (i.e., ‘with recycling’). thod i Interest calculated using the effective interest me Tecognized in profit or loss. FVOCI - election ‘ties that a Gains and losses on investments in equity securities rite irrevocably elected to be measured at FVOCI are als0 ancial 0 | in other comprehensive income. However, when the fir | adments f wzed, the cumulative Bain OF Toss previous iously ml: ger000 in other comprehensive income is not Subsequently ty may transfer the § | ‘oo 4 to profit or loss, but the entit as a direct transfer to ae ain or loss within equity, eg, varningS (ie., ‘without recycling’), eine ivi dends received are recognized in profit or loss, ortized cost ed sn mosses on financial assets measured at amortized Gains oF those arising from derecognition, welantiiceton or impairmhent, are recognized in profit or loss. fas ization, ort re not recognized. value changes al > Amortized cost is the “amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial- amount and the maturity amount and, for financial assets adjusted for any loss allowance.” (PFRS 9.Appendix A) :WO df 49SJJO YIM) "T/q UT pazrusooa1 : aue sassoj/sutes yuauireduy - . “Wd Ul paziu8oza1 st poyaut ysarajut aAQIazJa ayy Suisn paynduwios auroour ysazajuy - ( Suyohoa $}S09 yasse 441M,) [DO Ut paztu8ooax uolpesueyy yualinzu0U (Asojupuvm) are anyea sey ul sa8ueyD - onyea ey snjd onyeA Arey JO Juan saytinzas 3qaq © DOA *€ (,3usjofioas $}SOD 7) yesse : 4noYyzIM,) [DO Ut pazuS0Iax uoyoesuely yuaLm>uou saQunsas (4014201) axe anjea s1ey ursa8ueyD - | anyea rey snjd anjea med | JO yuaLinD * Anby DOAI ‘7 Vd Wt pazru8osar yasse senundas axe anyea sey ut saSueyD - anyea rey yualind | Amba Jo 3gaq |- TdAd ‘T uoyisod 3 : : amoour Juawmainsvam | juamasnsvau femme uf nopsodutoy assy jwrsuvuyf aarsuayasduoo fo juauajy3g | juanbasqns Pou foyusmayng f0 uoyvarfissyjytion, financial assets are reclassified ts business model for er Cli ie . -ccati of financial : is gjassifications udp assets are applied fi te that were recognized in the previous periods are not teres . ite tee” : sassification date is “the first day of the first reporting period Re the change’ in business model that results in an owing i . ” fol ifying financial assets.” (PFRS 9.Appendix A) entity yeclass! only debt instruments can be reclassified. Equity ipsruments (eg. investments in shares of stocks) cannot be reclassified. . s that are reclassified are remeasured to Financial asset: their fair value on reclassification date. For reclassifications from Foc! (mandatory) to amortized cost, the cumulative gain or loss previously recognized in other comprehensive income is removed from equity and adjuste air value of the financial d against the f aset at the reclassification date. The difference between the carying amount and the reclassification date fair value is recognized in profit or loss (for reclassifications to oF from and amortized cost) and in other comprehensive income (for eclassifications to or from FVOCI)- Peat S9 uses an expected credit loss model for. recognizing that are measured | 7 vn losses on debt-type financial assets that 4 ‘ oun a cost or FVOCI (mandatory): ere is 7 oo use = for impairment of financial assets measure — ia tealized anges in their fair values are simply reco Th gains or losses in profit or los [ 'Ype of. . CL model requires three 4 set or credit exposure. These ar? S. pproachCredit risk has not significantly since initial recognition. ‘Low credit risk’ 12-month expected Interest revenue is computed on the gross carrying amount of the asset 10N IMPROVEMENT. DETERIOM Credit risk has Credit risk has increased increased significantly since significantly since initial recognition. initial recognition plus there is objective evidence of impairment. > Recognize Lifetime expected credit losses > Interest revenue is Recognize Lifetime expected credit _ losses Interest revenue is the computed on the computed on Bross carrying net carrying amount of the asset amount (i ei a carrying a™ cd less loss allow2 Change in credit risk since initial recognitionsty recognizes a loss allowance for expected credit en Ae jowance is the allowance for expected credit losses on ' 1088 al eset that are within the scope of the impairment js onts of PERS 9. i : el credit losses ~ is “the weighted average of credit eg pxpecte” th the respective risks of a default occurring as the ~ Jose 4. (PFRS9-APPERA A) * . — is “the difference between all contractual cash due to an entity in accordance with the contract flows that the entity expects to receive (ie, all shortfalls), discounted at the original effective interest rate (OF credit-adjusted effective einadl rate for purchased or originated credit-impaired financial assets).” (PFRS 9.Appendix A) The-amount of the loss allowance shall reflect the credit e instrument. As shown on the table above: ee Behe 23 : quality of th “1 If credit risk has not increased significantly since initial recognition or if the entity opts to apply the ‘low credit risk” expediency, the entity shall recognize a loss allowance equal to 12-month expected credit losses. * 12-month expected credit losses - “The portion of lifetime expected credit losses that represent the expected credit losses that result from default events on @ j instrument that are possible within the 12 months after the Teporting date.” (PFRS9.Appendix A) me risk — “The risk that one party to 2 Gnancial poe will cause a financial loss for the other party by ‘ing to discharge an obligation.” (PERS 7-Appendix AD ‘Loy i - Credit risk’ expediency: An entity may assume that the t risk has not increased significantly since initial <<FRR 9 recognition if the financial instrument jg have low:credit risk at the reporting oe simplification is designed to relieve entities fro is Phong ‘changes in the credit risk of high quality assets, They can be applied on an instrument by instrument base Oty determines ty 2. If credit risk has increased significantly sing _ recognition but there is no objective evidence of im e Mig the entity shall recognize a loss allowance e | | 7 : ‘qual to Lifog: - expected credit losses. ' 0 lifeting 3 ¢ Lifetime expected credit losses — * losses that result from all possible default event expected life of a financial instrument.” “The expected credit S Over the (PERS 9.Appendix 4) If credit risk has increased Significantly since initia recognition and there is an objective evidence of impairment, the entity shall also recognize a loss allowance equal to lifetime expected credit losses. Notice that the measurement of loss allowance is the same in ‘Stages 2 and 3.’ However, the measurement of interest revenue varies. Under Stage 2, interest revenue is measured on the grass carrying amount of the instrument while under Stage 3, interes revenue is measured on the net carrying amount of the instrument (ie., gross carrying amount less loss allowance). If the credit quality of an instrument improves, itt may revert to measuring the loss allowance from > ie expected credit losses to the 12-month expected credit oe » decrease in the loss allowance is recognized as a gain. an entityie ments : ' _ instr : we 541 nition : i ot0009) assets are derecognized when: - 00 "actual rights to the cash flo ae fi contr ws from the financial asset eines OF : : op cial assets are transferred and the trans b the ‘nition. ‘ansfer qualifies fof derecog™ ration of contractual rights to cash flows Lahle tual rights t cash flows from a financial asset expire wh Cont ash flows are collected, cancelled, or, when they t = ipolectible because of loss events. | transfer _. ‘ f "4 financial asset is transferred if the entity either:. a, transfers the contractual rights to receive the cash flows of the financial asset; OF }, retains the contractual rights to receive the cash flows of the financial asset, but assumes an obligation to remit the ‘collections to a recipient in an arrangement that meets all of the conditions listed below: i. The entity is not obligated to pay the recipient unless it collects an equivalent amount from the original asset. ii. The entity is prohibited from selling or pledging the original __ asset except as security in favor of the recipient ili, The entity is obligated to remit collections to the eventual ecipients without material delay. In addition, choos! e prohibited from reinvesting the collections except in st . 4 from the collection cash equivalents during the short os interest date to the required remittance date and any : jpient. earned on the investment is also remitted tothe OP Balu ation of t b ransfers ‘ rewards of \ the entity transfers substantially all the 1 izes the nership of the financial asset, the ay ss or liabilities XY Nancial asset and recognizes separately . pe transte- hts and obligations created oF retained in> If the entity retains substantially all the risks ana ownership of the financial asset, the entity cont dy recognize the financial asset. ‘ Mitinue, , If the entity neither transfers nor retains substantial : risks and rewards (e.g.,.-when there is Partial tra y all the partial retention), the entity determines whethe = and retained control of the financial asset: . It ha a. If the.entity has not retained control, financial asset and recognizes separ; liabilities any rights and obligations cr the transfer. b. If the entity has retained control, it continues to the financial asset to the extent of in the financial asset. it dereco, i205 ‘ately as assets eated or Tetained in : : Fecognize its continuing involvement Classification of Financial Liabilities All financial liabilities are classified as subsequently measured at amortized cost, except for the following: a. Financial liabilities at fair value through profit or loss (FVPL) and derivative liabilities - subsequently measured at fair value (e.g., designated or held for trading). Financial liabilities that arise when a transfer of a finandal asset does not qualify for derecognition - subsequent measured.on a basis that reflects the rights and obligation that the entity has retained. idea Financial guarantee contracts and Commitments to prov! loan at a below-market interest rate — subsequently meas at the higher of: pete i, the amount of the loss allowance (12-month & credit losses) and ii, the amount initially recognized less, when 4PF the cumulative amount of income 1e0°8" ‘accordance with the principles of PFRS 15. jales opti proP intion recognized by an acquirer in a considera ‘on — subsequently measured at fair value gro! ; ni of financial liabilities after initial yroment Of financial Liabilities ea wil rneasureentt nancial jiabilities costs, sts are exp! are initially measured at fair value minus except financial liabilities at FVPL whose ensed immediately. subsequent measurement Financial liabilities classified as amortized cost are subsequent measured at amortized cost. Financial liabilities classified as held for trading are subsequently measured at fair value with changes in fair recognized in profit or loss. Financial liabilities designated at FVPL are subsequently nesured at fair value with changes in fa : values recognized 35 follows: ; amount of change in the fair value of the finandal ability : - attributable to changes in the credit b, na sented in other comprehensive income, remaining amount of change i” the fair value of the liability ¢ ability is presented in profit or loss.e Financial assets are classified on the basis of ; entity’s business model for managing the financig @ > (b) the contractual cash flow characteristics Of the finag Ss 2 e The classifications of financial assets are. L: EvpL cial ae (election), 3. FVOCI (mandatory), and 4, Amortized, z Nog ¢ A financial asset is classified as: ” COst, : a. Amortized cost if it is held under a “hold business model and qualifies under the “SPRY 4 © college b. FVOCI (mandatory) if it is held unde est ae wet 8 “hold tg and sell” business model and qualifies under the sal test. : SpPy c. FVPL for all other financial assets, e Exceptions: 1. Option to designate financial assets to FVPL if doing so significantly reduce “accounting mismatch.” 2. Election to measure investments in equity securities that are not held for trading at FVOCI. e Reclassification of financial assets is Permitted only when the entity changes its business model for managing financial assets. A mere change in management's intention does not warrant reclassification. Reclassification _is applied Prtospectively on reclassification date: * Reclassification date is the first day of the first reporting period following the change in business model. : . ¢ Only debt-type financial assets can be reclassified. Equity instruments cannot be reclassified. aly 0 ¢ The impairment requirements of PFRS 9 apply omy financial assets measured at amortized cost of (mandatory), i.e., debt-type financial assets only. e Financial liabilities are generally classified to be subset measured at amortized cost. » Reclassification of financial liabilities is prohibited. be measureg at S Or eliminates ently