IFRS 9 Reclassification of financial instruments

IFRS 9 Reclassification of financial instruments

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. [IFRS 9, paragraph 4.4.1]

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.

IFRS 9 does not allow reclassification: IFRS 9 Reclassification of financial instruments

  • for equity investments measured at FVTOCI, or
  • where the fair value option has been exercised in any circumstance for a
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IFRS 9 Financial Instruments Measurement

IFRS 9 Financial Instruments Measurement uses the following criteria for determining the classification and measurement of financial assets at Amortized Cost, Fair Value through Other Comprehensive Income (FVOCI) or Fair Value through Profit or Loss (FVPL):

IFRS 9 Financial Instruments Measurement

The critical issues for classifying and measuring financial assets are whether:

  • The objective of the entity’s business model is to hold assets only to collect cash flows, or to collect cash flows and to sell (“the Business Model test”), and

  • The contractual cash flows of an asset give rise to payments on specified dates that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding (“the SPPI test”). IFRS 9 Financial Instruments Measurement

Both of these … Read more

Classification for investments in bonds

Under IFRS 9, bonds should be classified and measured based on an entity’s business model for managing the bonds and their contractual cash flow characteristics (SPPI Test) (see table below). The business model refers to how an entity manages bonds in order to generate cash flows—either by collecting contractual cash flows, selling the bonds or both. An entity is also required to determine whether the bond’s contractual cash flows are “Solely Payments of Principal and Interest” (SPPI) on the principal amount outstanding.

The entity must assess its business model by looking at several factors, including the expected frequency, volume and timing of asset sales, the measurement of financial asset performance, the management of investment risks, and whether the compensation of … Read more

Instruments with certain par prepayment features

Or debt instruments with prepayment features that give rise to compensation being paid to the party triggering the possibility to be measured at amortised cost or fair value through other comprehensive income (FVOCI) in certain circumstances. Instruments with certain par prepayment features

If a financial asset would otherwise meet the SPPI test, but fails to do so only as a result of a contractual term that permits or requires prepayment before maturity, or permits or requires the holder to put the instrument back to the issuer, then the asset can be measured at amortised cost or FVOCI if:

  • the relevant business model test is satisfied; Instruments with certain par prepayment features
  • the entity acquired or originated the financial asset at
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Financial liabilities not at amortised costs

IFRS 9 retains almost all of the existing requirements from IAS 39 on the classification of financial liabilities – including those relating to embedded derivatives – because the Board believes that the benefits of changing practice would not outweigh the costs of the disruption caused by such a change. [IFRS 9 BCE 12] Financial liabilities not at amortised costs

Therefore under IFRS 9, financial liabilities after initial recognition are subsequently classified as measured at amortised cost, except for the following instruments. [IFRS 9 4.2.1IFRS 9 4.2.2]

Financial liabilities not at amortised costs

Measurement requirements

Financial liabilities that are held for trading – including derivatives


Financial liabilities that are designated as at FVTPL on initial

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Commitments in financial statements

Commitments are items that are not reported as liabilities as of the balance sheet date. Some of these items are reported in the notes to the financial statements. Examples include non-cancelable (as at balance sheet date) binding contracts to rent space in the future or to purchase items at specified prices. Commitments in financial statementsPlan to sell a factory Highly probable Plan to sell a factory Highly probable

A financial commitment is a commitment to an expense at a future date. Commitments in financial statements

A capital commitment is the projected capital expenditure a company commits to spend on non-current assets over a period of time. Commitments in financial statements

Financial or capital commitment revolves around the designation of funds for a particular purpose including any future liability. Most commonly, this includes regular … Read more