PFRS 9 Flashcards
(24 cards)
What is PFRS 9
Financial Instruments
A financial asset is any asset that is:
a. Cash;
b. Equity instrument of another entity; \
c. Contractual right to receive cash or another financial asset or to exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity
A financial liability is any liability that is:
a. a contractual obligation to deliver cash or another financial asset to another entity; or
b. a contractual obligation to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity.
Financial assets are recognized only when the entity becomes a _________________________.
party to the contractual provisions of the instrument
Basis of classification of Financial instruement
- The entity’s business model for managing the financial assets; and
- The contractual cash flow characteristics of the financial asset.
Business model: ‘Hold to collect’
Cash flow characteristics: ‘SPPI’ (e.g., debt instrument)
Amortized cost
Business model: ‘Hold to collect and sell’ Cash flow characteristics: ‘SPPI’ (e.g., debt instrument)
FVOCI
Business model: Not defined
Cash flow characteristics: Not defined (e.g., held for trading securities, equity instrument)
FVPL
True or false
Only debt instruments can be classified under the Amortized Cost or FVOCI (mandatory) measurement categories
tRUE
Equity instruments are measured at ______, unless the entity makes an irrevocable election on initial recognition to measure them at
FVPL
A debt instrument that is not measured at amortized cost or at FVOCI is measured at ____________.
FVPL
bigyan kita scenario then bigyan moko analysis, okie bayon mwuaaa
- An entity acquires debt securities which the entity will hold until maturity to collect cash flows in the form of principal and interests.
However, in accordance with the entity’s credit risk management, the entity will sell any investment in which the credit risk becomes high in order to minimize losses.
Analysis: The entity’s business model is to hold financial assets in order to collect the contractual cash flows. This objective is not defeated by the mere fact that the entity sells investments to address credit risk.
Classification: The debt securities shall be classified as subsequently measured at amortized cost.
bigyan kita scenario then bigyan moko analysis, okie bayon mwuaaa
- An entity acquires debt securities which the entity will hold until maturity to collect cash flows in the form of principal and interests.
However, the entity will sell these investments when a ‘stress case’ or a ‘worst case’ scenario occurs (e.g., a run on the bank’s deposits)
Analysis: The entity’s business model is to hold financial assets in order to collect the contractual cash flows. This objective is not defeated by the mere fact that the entity sells investments to address a stress case scenario. This objective is also not defeated even when the entity has previously experienced a stress case scenario or have made recurring sales with insignificant value.
Classification: The debt securities shall be classified as subsequently measured at amortized cost
bigyan kita scenario then bigyan moko analysis, okie bayon mwuaaa
- An entity holds financial assets to meet its everyday liquidity needs and to settle maturing accounts payable and other accrued liabilities.
The entity actively manages its liquidity and therefore actively manages the return on the portfolio.
Accordingly, the entity holds financial assets to collect cash flows and sell financial assets to reinvest in higher yielding financial assets. Also, the entity makes frequent buying and selling of financial assets to better match the duration of its liabilities
Analysis: The entity’s objectives are to maximize the return on the portfolio, to meet everyday liquidity needs and to fund its maturing payables. The entity achieves these objectives by both collecting contractual cash flows and selling financial assets.
Classification: The financial assets shall be classified as subsequently measured at fair value through other comprehensive (FVOCI).
bigyan kita scenario then bigyan moko analysis, okie bayon mwuaaa
- An entity holds financial assets with the purpose of selling them to realize fair value gains.
Analysis: The entity’s objective is not to collect contractual cash flows but primarily to sell financial assets to realize fair value gains.
Classification: The financial assets shall be classified as subsequently measured at fair value through profit or loss (FVPL)
After initial recognition, financial assets are reclassified only when the entity changes its business model for ________________________.
managing financial assets
______________________ is the first day of the first reporting period following the change in business model that results in an entity reclassifying financial assets
Reclassification date
True or false
Only debt instruments cannot be reclassified
False- can be
True or false
Equity instruments (e.g., investments in shares of stocks) can reclassified.
False- cannot be reclassified
TRue or false
Financial assets cannot be reclassified into or out of the
“designated at FVPL” and “FVOCI - election” classifications.
True
The initial measurement is _________________, except for a reclassification from FVOCI to Amortized cost where the fair value on reclassification date is adjusted for the cumulative balance of gains and losses previously recognized in OCI.
fair value at reclassification date
The impairment requirements of PFRS 9 apply equally to debt-type financial assets that are measured either at ___________________
amortized cost or at FVOCI.
Impairment gains or losses on debt instruments measured at FVOCI are recognized in ______________. However, the loss allowance shall be recognized in __________________ and shall not reduce the carrying amount of the financial asset in the statement of financial position.
profit or loss
other comprehensive income
Dividends received from equity securities measured at ___________ (except share dividend) are recognized as dividend revenue.
FVPL or FVOCI
