Understanding IAS 39: Financial Instruments Recognition and Measurement

 
 
IFRS  Seminar
 
IAS 39 Financial Instruments:
Recognition and Measurement
 
 
Overview of session
 
 Review of key concepts
Classification of financial assets
Measurement of financial assets
Impairment of financial assets
Reclassification and tainting
Conclusion
 
2
 
 
Review of key concepts
 
3
 
 
A 
financial instrument 
is any contract that gives rise to a 
financial
asset 
of one entity and a 
financial liability 
or 
equity instrument 
of
another entity.
 
An 
equity instrument 
is any contract that evidences a residual interest
in the assets of another
 
 
 
Review of key concepts
 
4
 
 
A 
financial asset 
is any asset that is cash, an equity instrument of
another entity, a contract that (subject to certain conditions) will or may
be settled in the entity’s own equity instruments or a contractual right:
 
To receive cash or another financial asset from another entity; or
 
To exchange financial assets or financial liabilities with another entity
under conditions that are potentially favourable to the entity.
 
 
 
Review of key concepts
 
5
 
A 
financial liability 
is any liability that is a contract that (subject to
certain conditions) will or may be settled in the entity’s own equity
instruments or a contractual obligation:
 
To deliver cash or another financial asset to another entity; or
 
To exchange financial assets or financial liabilities with another entity
under conditions that are potentially unfavourable to the entity
 
 
Classification – Financial assets (Four categories)
 
Financial assets at fair value through profit or loss
 
Loans and receivables
 
Held to maturity
 
Available for sale
 
6
 
 
Classification – Financial liabilities (Two
categories)
 
 
Financial liabilities at fair value through profit or loss and
 
Other financial liabilities
 
7
 
Classification – Financial Assets
At Fair Value Through Profit or Loss (FVTPL)
 
8
At fair value through profit or loss
Held for trading
Designated at
inception
Intention of short term profit;
Derivatives – unless hedges 
or financial guarantee contracts
3 criteria for designation;
Irrevocable 
 
The fair value option
9
Criterion 2
Manage as
a portfolio on
a fair value
basis
Criterion 1
Accounting 
mismatch
Criterion 3
Embedded
derivative
 
Available only if either of the 3 criterion met
.
 
These criteria are generally
only met by financial institutions and other organisations with sophisticated
treasury operations
.
Classification – Financial Assets
At Fair Value Through Profit or Loss (FVTPL)
 
Classification  -  financial assets
Loans and receivables
10
Non-
derivative
Fixed or
determinable
payments
Not quoted
in an active
market
 
Classification - financial assets
Held to maturity
 
11
Non-
derivative
Fixed or
determinable
payments
Fixed
maturity
Entity has a
positive
intention
and ability
to hold to
maturity
There are tainting rules that can stop an entity
classifying assets as financial assets held-to-maturity
 
Classification - financial assets
Available-for-sale
 
12
Non-
derivative
Not
classified in
any of the
other
categories
 
 
Why Is Classification Important?
 
Because it drives subsequent measurement of the financial asset…
13
 
 
 Measurement of financial assets
 
Initial recognition
-
When (i.e. timing)
-
How much (i.e amount)
-
Which account (i.e category)
 
Transaction costs
 
14
 
Transaction costs
15
Directly
attributable and
incremental
Fair value
through profit
or loss - 
expense
All categories
apart from Fair
Value Through
Profit or Loss –
include in initial
measurement
 
 
Subsequent Measurement
 
16
Financial assets at fair value
through profit or loss
Held to maturity
Available for sale
Loans and receivables
At FV through
profit or loss
At amortized cost
At FV through
equity
 
 
 Example: 
Initial fair value
 
An entity enters into a marketing agreement with another organisation.
As part of the agreement the entity makes a two year £5,000 interest
free loan. Equivalent loans would normally carry an interest rate of 6%,
given the borrower’s credit rating. The entity made the loan in
anticipation of receiving future marketing and product benefits.
 
17
 
 
 Example: 
Initial fair value
 
Solution:
The fair value of the loan can be determined by discounting the future
cash flows to present value using the prevailing market interest rate for
a similar instrument with a similar credit rating. The present value of
the cash flow in two years time at 6% is £4,450 (£5,000 × (1/1.06
2
)). On
initial recognition of the financial asset the entity should recognise a
loss of £550 as follows:
DR    Loan                                            £4,450
DR    Loss (finance expense)               £550
        CR                Cash                                                  £5,000
 
The difference between this initial amount recognised of £4,450 and the
final amount received of £5,000 should be treated as interest received
and recognised in profit or loss over the two year period.
 
18
 
 
 Example: 
At fair value through profit or loss
 
An entity acquired a derivative on 1 May 20X6 for £200 cash. On 31
December 20X6, the next reporting date, the fair value of the derivative
was £340. On 31 December 20X7 the derivative’s fair value had fallen to
£220.
Set out the journal entries to record these transactions.
Solution:
On 1 May 20X6:
DR Derivative financial asset                                    £200
        CR Cash                                                                                        £200
On 31 December 20X6:
DR Derivative financial asset                                    £140
CR Profit or loss – gain on financial asset    (£340 – £200)      £140
 
19
 
 
 Example: 
At fair value through profit or loss
 
Solution:
On 31 December 20X7:
DR Profit or loss – loss on financial asset (£340 – £220)         £120
        CR Derivative financial asset                                                             £120
 
20
 
 
 Exercise: 
Held to maturity
 
An entity acquires a zero coupon bond with a nominal value of £20,000
on 1 January 20X6 for £18,900.
The bond is quoted in an active market and broker’s fees of £500 were
incurred in relation to the purchase. The bond is redeemable on 31
December 20X7 at a premium of 10%. The effective interest rate on the
bond is 6.49%.
Requirement
Set out the journals to show the accounting entries for the bond until
redemption if it is classified as a held-to-maturity financial asset. The
entity has a 31 December year end.
 
21
 
 
 Exercise: 
Held to maturity
 
Solution:
On 1 January 20X6
DR Financial asset (£18,900 plus £500)                      £19,400
        CR Cash                                                                                £19,400
On 31 December 20X6
DR Financial asset (£19,400  6.49%)                          £1,259
CR Interest income                                                                      £1,259
On 31 December 20X7
DR Financial asset ((£19,400+£1,259) x 6.49%)         £1,341
CR Interest income                                                                      £1,341
DR Cash                                                                           £22,000
CR Financial asset                                                                      £22,000
 
22
 
 
 
Held to maturity and Available for sale
clasifications
 
 
Example:
An entity acquired a 6% £1,000 par value financial asset for its fair
value of £970 at the beginning of Year 1. Interest of 6% was receivable
annually in arrears. The financial asset was redeemable at the end of
Year 3 at £1,030, a premium of 3% to par value. The financial asset is
quoted in an active market and was classified as held to maturity by the
entity.
Held-to-maturity financial assets should be measured at amortised cost.
The effective interest rate of the financial instrument can be calculated
at 8.1%. The rate is higher than the coupon rate, because it amortises
the discount on issue and the premium on redemption.
 
The amortised cost carrying amount should be determined as follows.
 
23
 
 
 
 Amortised cost and 
effective interest method
 
Solution
:
Year           Opening      Interest @ 8.1%     Cash flow     Closing balance
                     balance      in profit or loss
                          £                          £                          £                             £
1                      970                      78                        (60)                       988
2                     988                       80                       (60)                    1,008
3                  1,008                       82                  (1,090)                           0
 
If the entity had classified the financial asset as available for sale, the
asset should have been measured at fair value at each reporting date.
 If the fair values of the financial asset at the end of Year 1 and Year 2
were £1,100 and £1,050, the financial asset should have been
recognised at the following amounts.
 
24
 
 
 
 Amortised cost and 
effective interest method
 
Solution
:
If the entity had classified the financial asset as available for sale, the asset
should have been measured at fair value at each reporting date.
 If the fair values of the financial asset at the end of Year 1 and Year 2 were
£1,100 and £1,050, the financial asset should have been recognised at the
following amounts.
                                                                            Gain/(loss) in
                                                                                    Other                Closing
           Opening   Interest @ 8.1%                       Compreh.       balance – fair
Year   Balance   in profit or loss   Cash flow   income (bal)        value
                   £                  £                           £                 £                          £
1               970                78                      (60)             112                     1,100
2            1,100                80                     (60)            (70)                    1,050
3            1,050                82                 (1,090)           (42)                            0
 
25
 
 
Fair value measurement
 
IAS 39 defines 
fair value
 as:
 
“the amount for which an asset could be exchanged, or a liability
settled, between knowledgeable, willing parties in an arm’s length
transaction.”
 
Fair value = Transaction price (fair value of consideration given or
received)
 
26
 
 
Fair value measurement
 
Example 1 – Interest free loan to an employee
An entity grants an interest free loan of € 1,000 to an employee for a
period of two years. The market rate of interest to this individual for a
two year loan payable at maturity is 10%.
What is the initial fair value?
 
Consideration given to employee consists of two assets:
The fair value of the loan = €1,000/(1.10)
2 
= €826
Difference of €174 is accounted for as employee compensation in
accordance with IAS 19, ‘Employee benefits’
 
 
27
 
 
Fair Value Hierarchy
 
 
28
 
 
Active
 
market –
Published quotations
No active market –
Valuation
Techniques
No active market –
Unreliable fair
value for equity
instrument – cost
less any
impairment
 
Best evidence
 
Alternative
 
Very rare
 
 
Fair value measurement
 
Question 1
 Star owns 15% of shares of Moon.
Shares quoted on a local stock exchange, trading volume indicates
sufficiently active market.
 The quoted market price is €100 per share.
 If decided to sell entire block of shares, the price they believe they
would be able to obtain would be €80 per share.
What value should be placed on the shares?
 
29
 
 
Fair value measurement
 
Question 2
 Star purchases an AFS equity security for €100 and pays purchase
commission of €2.
 At the end of Star’s financial year, the security’s quoted market price
is €105. Commission of €3 would be payable if the security was sold on
that date.
 
What amount is recognised initially and at the end of the
financial year?
 
30
 
 
Impairment of financial assets
Impairment occurs when
 
Carrying amount > Recoverable amount
 
31
Only relevant for financial assets carried at cost
 or amortised cost and AFS financial assets
 
Impairment of financial asset
 
Step 1 – Objective evidence of impairment
 
Step 2 – Calculate recoverable amount / fair value
 
Step 3 – Record impairment in profit & loss
32
 
Impairment Indicators for debt instruments
 
33
Significant
difficulty of the
issuer
Breach of
contract for
failure to pay
interest or
principal
Lender grants
borrower in
financial
difficulty a
concession
that the
lender would
not otherwise
consider
High
probability of
bankruptcy
Disappearance
of active
market
because of
financial
difficulties
National or local economic conditions
that correlate with defaults (eg a
decrease in property prices for
mortgages in a relevant area)
 
Impairment Indicators for AFS equity investments
 
34
Significant adverse changes
that have taken place in the
technological, market,
economic or legal environment
in which the issuer operates.
In addition to impairment indicators for debt
instruments, indicators that are specific to equity
instruments include:
Significant or
prolonged decline
in fair value below
cost
 
Impairment AFS equity instruments
Significant
How do we define “significant”?
35
Judgement
 
Volatility relative to
current fair value
 
Decline consistent
with market
 
Share price
subsequent to
year end?
 
Percentage
decline?
 
 
Impairment AFS equity instruments
Prolonged
How do we define “prolonged”?
36
Judgement
 
Length of time
held
 
Impairment Calculation - Example
37
AFS equity investment
 
Impairment 
 
X1 =    100 – 70 = 30
  
X2 =   100 – 68 – 30 = 2
  
X3 =   100 – 69 – 32 = (1)  
 no impairment in PL
 
Start with ORIGINAL cost
Further decline in value is assessed against the original cost
 
X1
70
 
X2
68
 
X3
69
 
Reclassification between categories
38
Held-to-maturity
Available-for-sale
Held-to-maturity
Available-for-sale
Loans and
receivables
Held for trading
Reclassification out of FVTPL designated on initial recognition
is prohibited under any circumstances
 
Reclassification out of HTM to AFS - Tainting
 
39
 Reclassify 
all
 investments to AFS at fair value.
 Entire HTM portfolio is tainted.
 Further classification not permitted for two years after sale.
Entity sells more than an insignificant amount of HTM
investments
Exceptions:
 The sale is close to maturity.
 Substantially all of the original principal collected before
sale.
 The sale is an isolated event outside the control of the entity.
 
Reclassification out of AFS
 
40
 
To HTM :
 
 
Entity intends and has the ability to hold the loan to
 
maturity.
 
 
When the tainted held-to-maturity portfolio has been
 
‘cleansed’ at the end of the second financial year
following 
 
tainting.
To loans and Receivables:
The AFS asset meets the criteria to be classified as loans
and receivables at the date of reclassification and the
entity has the intention and the ability to hold the
financial asset for the foreseeable future or until maturity.
 
Reclassification out of Held for Trading
 
41
 
To HTM or AFS
 
Transfer permitted only for assets that do not meet the
 
definition of loans and receivables at the date of
 
reclassification and only in 
‘rare’
 circumstances.
To loans and receivables:
The Held for Trading asset meets the criteria to be
classified 
 
as loans and receivables at the date of
reclassification and  the entity has the intention and the
ability to hold the financial asset for the foreseeable future
or until maturity.
 
 
Rare -- Single event that is unusual and unlikely to recur in the
near term.
 
 
Conclusion
 
Key points to remember
 Classification drives measurement
 Mixed measurement model – fair value or amortised cost
 Fair value hierarchy - quoted price best evidence of fair
value
 Impairment only if objective evidence
 Reclassifications are permitted only in certain
circumstances.
 
 
42
 
 
Thank you!
 
43
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This content provides an overview of an IFRS seminar on IAS 39, focusing on key concepts such as the classification and measurement of financial assets, impairment, reclassification, and more. It covers definitions of financial instruments, financial assets, equity instruments, and financial liabilities, as well as classification of financial assets and liabilities into different categories. The session also delves into Financial Assets at Fair Value Through Profit or Loss (FVTPL) and other pertinent topics related to IAS 39.


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  1. IFRS Seminar IAS 39 Financial Instruments: Recognition and Measurement

  2. Overview of session Review of key concepts Classification of financial assets Measurement of financial assets Impairment of financial assets Reclassification and tainting Conclusion 2

  3. Review of key concepts A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. An equity instrument is any contract that evidences a residual interest in the assets of another 3

  4. Review of key concepts A financial asset is any asset that is cash, an equity instrument of another entity, a contract that (subject to certain conditions) will or may be settled in the entity s own equity instruments or a contractual right: To receive cash or another financial asset from another entity; or To exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity. 4

  5. Review of key concepts A financial liability is any liability that is a contract that (subject to certain conditions) will or may be settled in the entity s own equity instruments or a contractual obligation: To deliver cash or another financial asset to another entity; or To exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity 5

  6. Classification Financial assets (Four categories) Financial assets at fair value through profit or loss Loans and receivables Held to maturity Available for sale 6

  7. Classification Financial liabilities (Two categories) Financial liabilities at fair value through profit or loss and Other financial liabilities 7

  8. Classification Financial Assets At Fair Value Through Profit or Loss (FVTPL) At fair value through profit or loss Designated at inception Held for trading Intention of short term profit; Derivatives unless hedges or financial guarantee contracts 3 criteria for designation; Irrevocable 8

  9. Classification Financial Assets At Fair Value Through Profit or Loss (FVTPL) The fair value option Available only if either of the 3 criterion met.These criteria are generally only met by financial institutions and other organisations with sophisticated treasury operations. Criterion 2 Manage as a portfolio on a fair value basis Criterion 1 Accounting mismatch Criterion 3 Embedded derivative 9

  10. Classification - financial assets Loans and receivables Fixed or determinable payments Not quoted in an active market Non- derivative 10

  11. Classification - financial assets Held to maturity Entity has a positive intention and ability to hold to maturity Fixed or determinable payments Non- Fixed maturity derivative There are tainting rules that can stop an entity classifying assets as financial assets held-to-maturity 11

  12. Classification - financial assets Available-for-sale Not classified in any of the other categories Non- derivative 12

  13. Why Is Classification Important? Because it drives subsequent measurement of the financial asset 13

  14. Measurement of financial assets Initial recognition - When (i.e. timing) - How much (i.e amount) - Which account (i.e category) Transaction costs 14

  15. Transaction costs All categories apart from Fair Value Through Profit or Loss include in initial measurement Directly attributable and incremental Fair value through profit or loss - expense 15

  16. Subsequent Measurement Financial assets at fair value through profit or loss At FV through profit or loss Loans and receivables At amortized cost Held to maturity At FV through equity Available for sale 16

  17. Example: Initial fair value An entity enters into a marketing agreement with another organisation. As part of the agreement the entity makes a two year 5,000 interest free loan. Equivalent loans would normally carry an interest rate of 6%, given the borrower s credit rating. The entity made the loan in anticipation of receiving future marketing and product benefits. 17

  18. Example: Initial fair value Solution: The fair value of the loan can be determined by discounting the future cash flows to present value using the prevailing market interest rate for a similar instrument with a similar credit rating. The present value of the cash flow in two years time at 6% is 4,450 ( 5,000 (1/1.062)). On initial recognition of the financial asset the entity should recognise a loss of 550 as follows: DR Loan 4,450 DR Loss (finance expense) 550 CR Cash 5,000 The difference between this initial amount recognised of 4,450 and the final amount received of 5,000 should be treated as interest received and recognised in profit or loss over the two year period. 18

  19. Example: At fair value through profit or loss An entity acquired a derivative on 1 May 20X6 for 200 cash. On 31 December 20X6, the next reporting date, the fair value of the derivative was 340. On 31 December 20X7 the derivative s fair value had fallen to 220. Set out the journal entries to record these transactions. Solution: On 1 May 20X6: DR Derivative financial asset 200 CR Cash 200 On 31 December 20X6: DR Derivative financial asset 140 CR Profit or loss gain on financial asset ( 340 200) 140 19

  20. Example: At fair value through profit or loss Solution: On 31 December 20X7: DR Profit or loss loss on financial asset ( 340 220) 120 CR Derivative financial asset 120 20

  21. Exercise: Held to maturity An entity acquires a zero coupon bond with a nominal value of 20,000 on 1 January 20X6 for 18,900. The bond is quoted in an active market and broker s fees of 500 were incurred in relation to the purchase. The bond is redeemable on 31 December 20X7 at a premium of 10%. The effective interest rate on the bond is 6.49%. Requirement Set out the journals to show the accounting entries for the bond until redemption if it is classified as a held-to-maturity financial asset. The entity has a 31 December year end. 21

  22. Exercise: Held to maturity Solution: On 1 January 20X6 DR Financial asset ( 18,900 plus 500) 19,400 CR Cash 19,400 On 31 December 20X6 DR Financial asset ( 19,400 6.49%) 1,259 CR Interest income 1,259 On 31 December 20X7 DR Financial asset (( 19,400+ 1,259) x 6.49%) 1,341 CR Interest income 1,341 DR Cash 22,000 CR Financial asset 22,000 22

  23. Held to maturity and Available for sale clasifications Example: An entity acquired a 6% 1,000 par value financial asset for its fair value of 970 at the beginning of Year 1. Interest of 6% was receivable annually in arrears. The financial asset was redeemable at the end of Year 3 at 1,030, a premium of 3% to par value. The financial asset is quoted in an active market and was classified as held to maturity by the entity. Held-to-maturity financial assets should be measured at amortised cost. The effective interest rate of the financial instrument can be calculated at 8.1%. The rate is higher than the coupon rate, because it amortises the discount on issue and the premium on redemption. The amortised cost carrying amount should be determined as follows. 23

  24. Amortised cost and effective interest method Solution: Year Opening Interest @ 8.1% Cash flow Closing balance balance in profit or loss 1 970 78 (60) 988 2 988 80 (60) 1,008 3 1,008 82 (1,090) 0 If the entity had classified the financial asset as available for sale, the asset should have been measured at fair value at each reporting date. If the fair values of the financial asset at the end of Year 1 and Year 2 were 1,100 and 1,050, the financial asset should have been recognised at the following amounts. 24

  25. Amortised cost and effective interest method Solution: If the entity had classified the financial asset as available for sale, the asset should have been measured at fair value at each reporting date. If the fair values of the financial asset at the end of Year 1 and Year 2 were 1,100 and 1,050, the financial asset should have been recognised at the following amounts. Gain/(loss) in Other Closing Opening Interest @ 8.1% Compreh. balance fair Year Balance in profit or loss Cash flow income (bal) value 1 970 78 (60) 112 1,100 2 1,100 80 (60) (70) 1,050 3 1,050 82 (1,090) (42) 0 25

  26. Fair value measurement IAS 39 defines fair value as: the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm s length transaction. Fair value = Transaction price (fair value of consideration given or received) 26

  27. Fair value measurement Example 1 Interest free loan to an employee An entity grants an interest free loan of 1,000 to an employee for a period of two years. The market rate of interest to this individual for a two year loan payable at maturity is 10%. What is the initial fair value? Consideration given to employee consists of two assets: The fair value of the loan = 1,000/(1.10)2 = 826 Difference of 174 is accounted for as employee compensation in accordance with IAS 19, Employee benefits 27

  28. Fair Value Hierarchy Active market Published quotations Best evidence No active market Valuation Techniques Alternative No active market Unreliable fair value for equity instrument cost less any impairment Very rare 28

  29. Fair value measurement Question 1 Star owns 15% of shares of Moon. Shares quoted on a local stock exchange, trading volume indicates sufficiently active market. The quoted market price is 100 per share. If decided to sell entire block of shares, the price they believe they would be able to obtain would be 80 per share. What value should be placed on the shares? 29

  30. Fair value measurement Question 2 Star purchases an AFS equity security for 100 and pays purchase commission of 2. At the end of Star s financial year, the security s quoted market price is 105. Commission of 3 would be payable if the security was sold on that date. What amount is recognised initially and at the end of the financial year? 30

  31. Impairment of financial assets Impairment occurs when Carrying amount > Recoverable amount Only relevant for financial assets carried at cost or amortised cost and AFS financial assets 31

  32. Impairment of financial asset Step 1 Objective evidence of impairment Step 2 Calculate recoverable amount / fair value Step 3 Record impairment in profit & loss 32

  33. Impairment Indicators for debt instruments Disappearance of active market because of financial difficulties Breach of contract for failure to pay interest or principal Significant difficulty of the issuer Lender grants borrower in financial difficulty a concession that the lender would not otherwise consider National or local economic conditions that correlate with defaults (eg a decrease in property prices for mortgages in a relevant area) High probability of bankruptcy 33

  34. Impairment Indicators for AFS equity investments In addition to impairment indicators for debt instruments, indicators that are specific to equity instruments include: Significant adverse changes that have taken place in the technological, market, economic or legal environment in which the issuer operates. Significant or prolonged decline in fair value below cost 34

  35. Impairment AFS equity instruments Significant How do we define significant ? Share price subsequent to year end? Percentage decline? Judgement Volatility relative to current fair value Decline consistent with market 35

  36. Impairment AFS equity instruments Prolonged How do we define prolonged ? Length of time held Judgement 36

  37. Impairment Calculation - Example AFS equity investment X1 X2 X3 Year X0 70 68 69 Fair Value 100 Impairment X1 = 100 70 = 30 X2 = 100 68 30 = 2 X3 = 100 69 32 = (1) no impairment in PL Start with ORIGINAL cost Further decline in value is assessed against the original cost 37

  38. Reclassification between categories Held-to-maturity Available-for-sale Available-for-sale Held-to-maturity Loans and receivables Held for trading Reclassification out of FVTPL designated on initial recognition is prohibited under any circumstances 38

  39. Reclassification out of HTM to AFS - Tainting Entity sells more than an insignificant amount of HTM investments Reclassify all investments to AFS at fair value. Entire HTM portfolio is tainted. Further classification not permitted for two years after sale. Exceptions: The sale is close to maturity. Substantially all of the original principal collected before sale. The sale is an isolated event outside the control of the entity. 39

  40. Reclassification out of AFS To HTM : Entity intends and has the ability to hold the loan to maturity. When the tainted held-to-maturity portfolio has been cleansed at the end of the second financial year following tainting. To loans and Receivables: The AFS asset meets the criteria to be classified as loans and receivables at the date of reclassification and the entity has the intention and the ability to hold the financial asset for the foreseeable future or until maturity. 40

  41. Reclassification out of Held for Trading To loans and receivables: The Held for Trading asset meets the criteria to be classified as loans and receivables at the date of reclassification and the entity has the intention and the ability to hold the financial asset for the foreseeable future or until maturity. To HTM or AFS Transfer permitted only for assets that do not meet the definition of loans and receivables at the date of reclassification and only in rare circumstances. Rare -- Single event that is unusual and unlikely to recur in the near term. 41

  42. Conclusion Key points to remember Classification drives measurement Mixed measurement model fair value or amortised cost Fair value hierarchy - quoted price best evidence of fair value Impairment only if objective evidence Reclassifications are permitted only in certain circumstances. 42

  43. Thank you! 43

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