Full PFRS

(PFRS 9: Financial Instruments)

PFRS for Medium Entities
(Section 11: Basic Financial Instruments
Section 12: Other Financial Instruments)
PFRS for Small Entities
(Section 6: Basic Financial Instruments
Section 7: Other Financial Instruments)

FINANCIAL ASSETS
Definition: A financial asset is a liquid asset that gets its value from a
contractual right or ownership claim. Cash, stocks, bonds, mutual funds, and
bank deposits are all are examples of financial assets.
https://www.investopedia.com/terms/f/financialasset.asp
Under IFRS 9, a financial asset is initially measured at fair value plus
transaction costs, unless it is carried at fair value through profit or loss, in
which case transaction costs are immediately expensed.
https://www.bdo.com.au/en-au/content/accounting-news/accounting-news-
may-2018/financial-assets-under-ifrs-9
Two Types of Financial Assets:
1. Equity Instruments (FVOCI,FVPL)
2. Debt Instruments (AC, FVOCI, FVPL)
Classification of BUSINESS MODEL CONTRACTUAL CASH
Financial Assets TESTS FLOW TESTS
FA at Amortized cost "Hold to collect" "SPPI"
(AC)

FA at Fair value through "Hold to collect & sell" "SPPI"

other comprehensive
income (FVOCI)

FA at Fair value through "Held for trading" N/A

profit or loss (FVPL)* *Neither hold to collect
or to sell"
What is the basis of classification of financial assets?

1.BUSINESS MODEL TESTS

Either,
Objective is to hold financial assets in order to collect contractual cash flows.
("Hold to collect")
Objective is both to collect contractual cash flows and to sell the financial
assets. ("Hold to collect & sell")
Objective is neither to collect contractual cash flows nor to sell the financial
assets. ("Held for trading" )

2.CONTRACTUAL CASH FLOW TESTS

The contractual terms of the financial asset give rise on specified dates to
cash flows that are solely payments of principal and interest on the principal
amount outstanding. ("SPPI")-solely payments of principal and interest

Exceptions to classification of financial assets:

 When the entity makes an irrevocable election to classify an investment

in equity instruments at FVOCI

 When the entity makes an irrevocable designation to classify an

investment in debt instruments at FVPL

RECOGNITION
Full PFRS PFRS for SMEs PFRS for SEs

An entity shall recognize a financial asset or a financial liability only

when the entity becomes a party to the contractual provisions of the
instrument.

DERECOGNITION
Full PFRS PFRS for SMEs PFRS for SEs
A company derecognises a financial asset when: An entity shall
 derecognize a financial
a)the contractual rights to the cash flows from the asset when:
financial asset have expired, or a) the contractual rights
to the cash flows from
b) it transfers the financial asset such that it the financial asset
qualifies for derecognition. expire or are settled; or
b) the entity transfers to
A company transfers a financial asset where it another party
transfers the contractual rights to receive the cash substantially all of the
flows of the financial asset, or where it retains the risks and rewards of
contractual rights to receive the cash flows of the ownership of
financial asset but assumes a contractual the financial asset.
obligation to pay the cash flows to a third party.
The company also evaluates the extent to which it
retains the risks and rewards of ownership of the
financial asset.

On derecognition of a financial asset, the

difference between the carrying amount and the
consideration received is recognised in profit or
loss. If a company neither transfers nor retains
substantially all the risks and rewards of
ownership of a transferred asset, and retains
control of the transferred asset, the company
continues to recognise the transferred asset to the
extent of its continuing involvement.

MEASUREMENT
Full PFRS PFRS for SMEs PFRS for SEs
Initial Measurement of
Debt Securities

FA at FVPL (fair value) Transaction price plus Transaction price plus

FA at FVOCI (fair value transaction cost transaction cost
plus transaction cost)
FA at AC (fair value plus
transaction cost)
Initial Measurement of
 Equity Securities
Transaction price Transaction price
FA at FVPL (fair value)
FA at FVOCI (fair value
plus transaction cost)

Subsequent • Debt instruments are

Measurement of Debt For basic financial measured at
Securities and Equity instruments,at the end amortised cost using the
Securities of each reporting effective
period: interest rate
FA at FVPL (fair value) • Debt instruments are • Investments in non-
FA at FVOCI (fair value) measured at amortised convertible
FA at AC (amortized cost using the effective preference shares and
cost) interest rate non-puttable
• Commitments to ordinary, and preference
receive a loan are shares that
measured at cost less are not publically traded
impairment or their fair
•Investments in value cannot otherwise
nonconvertible be reliably
preference shares measured, are
and non-puttable measured at cost less
ordinary, and impairment.
preference shares that • Investments in non-
are publically traded or convertible
their fair value can preference shares and
otherwise be reliably non-puttable
measured, are ordinary, and preference
measured at fair shares that
value through profit and are publically traded or
loss if a public market their fair
exists. value can otherwise be
reliably
measured, are
measured at lower of
cost or fair value with
the difference
going to profit or loss.

DISCLOSURES
 Full PFRS PFRS for SMEs PFRS for SEs
IFRS 9 amends some of An entity shall disclose, in the summary of
the requirements of significant accounting policies, the measurement
IFRS 7 Financial basis (or bases) used for financial instruments and
Instruments: the other accounting policies used for financial
Disclosures including instruments that are relevant to an understanding
adding disclosures of the financial statements.
about investments in
equity instruments
designated as at
FVTOCI, disclosures on
risk management
activities and hedge
accounting and
disclosures on credit
risk management and
impairment.

Full PFRS
https://www.iasplus.com/en/standards/ifrs/ifrs9
https://www.accaglobal.com/in/en/student/exam-support-resources/dipifr-
study-resources/technical-articles/ifrs9-pt1.html

PFRS for SMEs

https://iacsa.co.za/wp-content/uploads/2019/01/IFRS-for-SMES-2015.pdf

PFRS for SEs

https://www.dmdcpa.com.ph/wp-content/uploads/2019/01/PFRS-for-Small-
Entities-full-text-1.pdf

Full PFRS vs. PFRS For Medium Entities vs. PFRS For Small Entities
https://www.scribd.com/presentation/539533149/Full-PFRS-PFRS-for-
Medium-Entities-and-PFRS-for-Small-Entities
https://www.accaglobal.com/gb/en/student/exam-support-resources/
fundamentals-exams-study-resources/f7/technical-articles/financial-
instruments.html