Week 2: IFRS 9- Financial instruments

Question 1

What does IFRS 9 Financial instruments deal with?

Answer 1

• Recognition and derecognition
• Measurement of financial instruments
• Impairment
• General hedging accounting

Question 2

How does IAS 32 define a financial instrument?

Answer 2

A financial instrument is any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity.

Question 3

What is a financial liability?

Answer 3

A contractual obligation to deliver cash or another financial asset to another entity under conditions that are potentially unfavourable.

Question 4

What is an equity instrument?

Answer 4

Any contract that evidences
a residual interest in the assets of an entity
after deducting all of its liabilities.
e.g. ordinary shares

Question 5

What are the 3 measurement categories for financial assets under IFRS 9?

Answer 5

• fair value through profit or loss (FVTPL),
• fair value through other comprehensive income (FVTOCI)
• Amortised cost

Question 6

What are the 2 measurement categories for financial liabilities and when is each used?

Answer 6

• fair value through profit or loss (FVTPL)
• amortised costs.

held for trading are measured at FVTPL. All other at amortised costs.

Question 7

When is a financial asset measured at amortised costs?

Answer 7

If it fulfils these tests:
1) Business model test- intent to hold asset until maturity.
2) Contractual cash flow test- contractual cash receipts on holding the asset.