21 financial instruments version2011 01

8/10/2019 21 Financial Instruments Version2011 01

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2011 IFRS Foundation

1The IFRS for SMEs

Topic 2.1

Section 11 Basic Financial Instruments

Section 12 Other Fin. Inst. IssuesSection 22Liabilities and Equity


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2

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3Sections 1112 3 Introduction

Financial instru#ents split into twosections%

Sec. 11 Basic Financial Instruments

Sec. 12 Other Financial InstrumentsIssues

Toether the two sections cover

reconisin" dereconisin" #easurin"

and disclosin financial assets andfinancial liabilities


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4Sections 1112 3 Introduction

Section 11 is relevant to all S()s Section 12 is relevant If%

SME owns or issues exotic !inancial

instruments instruments that im"ose

ris#s or rewar$s that are not t%"ical o!

&asic !inancial instruments

SME wants to $o he$'e accountin'


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(Sections 1112 3 Accountin choice

)ntity #ay choose to apply either% Sections 11 an$ 12 in !ull) or

*eco'nition an$ measurement "ro+isions

o! I,S 3- an$ the $isclosure

reuirements in Sec 11 / 12

0o o"tion to use IF*S -

The option chosen applies to all financial

instru#ents -not individually To chane option" follow Section 10


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Sections 1112 3 Basic principles

Basic principle of Section 11%

,mortise$ cost mo$el !or all &asic FI

exce"t in+estments in or$inar% or

"re!erence shares that are "u&licl% tra$e$

or whose !air +alue can &e measure$relia&l% these are !air +alue throu'h

"ro!it or loss F567. Basic principle of Section 12%

FI not co+ere$ &% Section 11 are at

F56


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8Section 11 3 Scope

All basic financial instru#ents e4ceptthose covered by other sections of IFRS

for SMEs%

In+estments in su&) associate) 9 see

Sections -) 14) 1(7 Entit%s own euit% see Sec 22) 27

6eases see Section 2:7

Em"lo%ee &ene!it assets an$ lia&ilitiessee Section 2;7


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;Sections 1112 3 5efinitions

Financial instru#ent


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-Sections 1112 3 5efinitions

Basic financial instru#ent6


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1:Section 11 3 Basic debt instru#ents

5ebt instru#ents are in Section 11 if% *eturns to hol$er are !ixe$) +aria&le

re!erence$ to an o&ser+a&le rate) or

com&ination o! !ixe$ an$ +aria&le

0o s"ecial "ro+ision coul$ cause hol$er

to lose "rinci"al

5re"a%ment con$itions are not contin'ent

on a !uture e+ent 0o s"ecial con$itional returns


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11Section 11 3 Basic debt instru#ents

)4a#ples of basic debt instru#ents% ra$e accounts an$ notes recei+a&le an$

"a%a&le 6oans !rom &an#s an$ other 3r$ "arties

,ccounts "a%a&le in !orei'n currenc% 6oans to?!rom su&si$iaries or associates

that are $ue on $eman$ =e&t instrument that &ecomes

imme$iatel% $ue i! issuer $e!aults All of these #easured at a#ortised cost


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12Section 11 3 Basic debt instru#ents

)4a#ples of 78T basic debt instru#ents% In+estment in con+erti&le or "utta&le

shares or $e&t Swa"s) !orwar$s) !utures) o"tions) ri'hts)

an$ other $eri+ati+es 6oans with unusual "re"a%ment

con$itions &ase$ on tax chan'e)

accountin' chan'e) lin#e$ to com"an%

"er!ormance7 All of these are F9TP: under Section 12


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13Section 11 3 Reconition and #easure#ent

Initial reconition%

@hen entit% &ecomes a "art% to the

contractual "ro+isions o! the instrument

IFRS for SMEsallows Au$'ement

re'ar$in' tra$e $ate +s settlement $ateaccountin') &ut &e consistent


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Initial #easure#ent%

,t transaction "rice

Inclu$e transaction costs exce"t !or FI

that will &e measure$ at F56

Im"ute interest i! "a%ment is $e!erre$

&e%on$ normal terms or &elowmar#et

interest


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1(Section 11 3 Reconition and #easure#ent

Initial reconition#easure#ent e4a#ples%

:oan #ade to another entity% Measure

at 5 o! interest an$ "rinci"al "a%ments

;oods sold to custo#er -purchased

fro# supplier on nor#al credit ter#s%Measure recei+a&le "a%a&le7 at

un$iscounte$ in+oice "rice


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1Section 11 3 Reconition and #easure#ent Initial reconition#easure#ent e4a#ples%

;oods sold -purchased on 2year interest freecredit% Measure at current cash sale "rice or 5 o!

recei+a&le or "a%a&le

)4a#ple% *e sell oods for 1"000" pay#ent due 2

years" interestfree. ?@. IRR = >.

/ournal entries 5ebit ?@

Sales Revenue >?@

)nd of year 1 Receivable

> 4 >?@ = Interest Revenue


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Subse+uent #easure#ent%

5ebt instru#ents in the scope of Section

11 -even if publicly traded%

,mortise$ cost usin' the e!!ecti+e

interest metho$ )+uity instru#ents in scope of Section 11%

I! "u&licl% tra$e$ or F can &e

measure$ relia&l%C F56,ll othersC cost less im"airment


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1;Section 11 3 Reconition and #easure#ent

*hat is Ca#ortised costDE

,mount measure$ at initial reco'nition

Minus re"a%ments o! "rinci"al

5lus or minus cumulati+e amortisation o!

an% $i!!erence &etween initial

measurement an$ maturit% amount usin'

e!!ecti+e interest metho$7

Minus !or assets7 re$uction !or im"airmentor uncollecti&ilit%


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1-Section 11 3 Reconition and #easure#ent

*hat is Ceffective interest #ethodDE

E!!ecti+e interest is rate that exactl% $iscounts!uture cash "a%ments recei"ts7 to the carr%in'

amount ,lso calle$ Internal *ate o! *eturn

,mortise$ cost D 5 o! !uture cash recei"ts"a%ments7 $iscounte$ at e!!ecti+e interest rate

Interest ex"ense income7 D carr%in' amount

at &e'innin' o! "erio$ x e!!ecti+e interest rate


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2:Section 11 3 )ffective interest e4a#ple

1&1&0 buy ?year bond for 00" transaction cost =

?0" cash interest = G0&year" #andatory rede#ptionat 1"100 at H1&12&G.

ear H6

-G0 1"0HH.>

H 1"0HH.> @1.G -G0 1"0?.>H

G 1"0?.>H @G.1 -G0 1"100.00

*6.9583% is the rate that exactly discounts the cash flows to 950.00


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*hat is Cfair valueDE,mount !or which FI coul$ &e sol$ or

settle$ in an arms len'th transaction BestC uote$ mar#et "rice in an acti+e

mar#et &i$ "rice7 0extC 5rice in a recent transaction !or

i$entical asset unless circumstances ha+e

chan'e$7

Estimate usin' a +aluation techniue amo$el7


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22Section 11 3 I#pair#ent

I#pair#ent only applies to FI #easured at

cost or a#ortised cost

At each reportin date" loo$ for evidence

that F9 is below carryin a#ount

Si'ni!icant !inancial $i!!icult% o! issuer

=e!ault or $elinuenc%

,&normal concession 'rante$ to $e&tor &%

cre$itor 5ro&a&le $e&tor &an#ru"tc% or reor'.


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I#pair#ent assess#ent%

In$i+i$uall% !or all euit% instruments

In$i+i$uall% !or $e&t instruments that are

in$i+i$uall% si'ni!icant

For other $e&t instruments) either

in$i+i$uall% or 'rou"e$ &ase$ on similar ris#

characteristics

I#pair#ent reconition% @rite$own is reco'nise$ in 5/6


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(easure#ent of the i#pair#ent loss%

5ebt instru#ents% =i!!erence &etweencarr%in' amount an$ current 5 o! estimate$

cash !lows $iscounte$ at assets ori'inal

e!!ecti+e interest rate. se current rate i!

+aria&le.7 )+uity instru#ents% =i!!erence &etween

carr%in' amount an$ &est estimate

a""roximation7 o! the amount mi'ht &e Gero7that entit% woul$ recei+e i! asset were sol$ at

re"ortin' $ate.


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2(Section 11 3 I#pair#ent

Reversal of an i#pair#ent loss%

*euire$ i! the "ro&lem causin' the ori'inal

im"airment re$uces

@rite u" &ut not to more than what carr%in'

amount woul$ ha+e &een ha$ noim"airment &een reco'nise$ ie not to F

&ut to new amortise$ cost7

*e+ersal reco'nise$ in 5/6


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2Section 11 3 5ereconition

5ereconition of a financial asset%

=ereco'nition D remo+e !rom &alance sheet

Onl% whenCa. *i'hts to cash !lows ex"ire or settle$

&. Su&stantiall% all ris#s an$ rewar$s cash!lows7 trans!erre$ to other entit%

c. rans!erre$ some &ut not su&stantiall% all

ris#s an$ rewar$s) an$ "h%sical control o!

asset trans!erre$ to another "art% who hasthe ri'ht to sell the asset to an unrelate$

thir$ "art%.


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28Section 11 3 5ereconition

5ereconition of a financial asset%

In case c7 a&o+eC

=ereco'nise ol$ asset entirel%) an$

*eco'nise se"aratel% an% ri'hts an$

o&li'ations retaine$ or create$ in the trans!ermeasure at !air +alue7

I! trans!er $oes not result in $ereco'nition) #ee"

trans!erre$ asset on &oo#s an$ reco'nise

!inancial lia&ilit% !or the consi$eration recei+e$ =o not o!!set


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2;Section 11 3 5ereconition

5ereco. of financial asset 3 e4a#ples%

(ust dereconise% Sell recei+a&les to &an#

&ut we continue to collect an$ remit) !or a

han$lin' !ee. Ban# assumes cre$it ris#.

(ay not dereconise% Same !acts exce"tentit% a'rees to &u% &ac# an% recei+a&les in

arrears !or more than 12: $a%s. Entit%

continues to reco'nise the recei+a&les until

collecte$ or writeo!! as uncollecti&le.


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2-Section 11 3 5ereconition

5ereconition of a financial liability%

Onl% when extin'uishe$) that isCa. =ischar'e$

&.


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3:Section 11 35isclosure

5isclose accountin policies for FI

5isclose financial assets and liabilities bycateories in the balance sheet%

Euit% or $e&t at F56

=e&t at amortise$ cost Euit% measure$ at cost less im"airment

6ia&ilities at F56

6ia&ilities at amortise$ cost


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31Section 11 3 5isclosure


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32Section 11 3 5isclosure

Ite#s of inco#e" e4pense" ains and

losses%


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Initial reconition%

@hen entit% &ecomes a "art% to thecontractual "ro+isions o! the instrument

Initial #easure#ent%

,t F normall% the transaction "rice7 ransaction costs are char'e$ to ex"ense


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Subse+uent #easure#ent%

,t F56 exce"tC Euit% instrument that is not "u&licl%

tra$e$ an$ cannot 'et F relia&l%) then

measure at cost less im"airment,lso measure a contract lin#e$ to such

euit% instrument at cost less im"airment

I! "re+iousl% at F56) &ut now a relia&le F

measure is no lon'er a+aila&le) treat mostrecent F measure as cost 'oin' !orwar$.


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3(Section 12 3 !ede accountin

C!edinD and Chede accountinD are two

different thins *hat is hedinE

Mana'in' ris#s &% usin' one !inancial

instrument he$'in' instrument7 "ur"osel%to o!!set the +aria&ilit% in F or cash !lows

o! a reco'nise$ asset or lia&ilit%) !irm

commitment) or !uture cash !lows he$'e$

item7


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3Section 12 3 !ede accountin

*hat is hede accountinE

Matchin' the chan'e in F o! the he$'in'

instrument an$ the he$'e$ item in the

same income statement

He$'e accountin' is onl% an issue whennormal accountin' woul$ "ut the two F

chan'es in $i!!erent "erio$s sometimes

re!erre$ to as an accountin' mismatch


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The hederDs accountin dile##a%

I ha+e a ris# in an asset or lia&ilit% measure$ atamortise$ cost ,n% chan'e in F or cash !lows !rom that

asset or lia&ilit% is reco'nise$ onl% when

realise$ in cash asset is sol$) lia&ilit% issettle$) cash !lows occur7

o he$'e) I &u% a $eri+ati+e) which is measure$

at F56 at each re"ortin' $ate

I need special hede accountin to fi4

this C#is#atchD


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3;Section 12 3 !ede accountin

The hederDs accountin dile##a 3 an

illustration% Entit% has note "a%a&le at a !ixe$ rate o! interest

$ue in 3 %ears. 0ote measure$ at amortise$ cost.

Bu%s swa" to con+ert recei+e !ixe$ interest to "a%

+aria&le. Swa" is measure$ at F56.

En$ o! %ear 1) interest rate $eclines. here!ore

loss on $eri+ati+e imme$iatel% reco'nise$ &ut

an o!!settin' 'ain not %et reco'nise$7 &ecause

we will &e "a%in' the lower +aria&le rate o!

interest in !uture.

S ti 12 ! d ti


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3-Section 12 3 !ede accountin

!ede accountin #atchin the ain -loss

on the derivative with the loss -ain on theheded ite#.

!ede accountin is optional.

S ti 12 ! d ti


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4:Section 12 3 !ede accountin

To +ualify for hede accountin%

=esi'nate an$ $ocument he$'in'relationshi" u" !ront


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41Section 123 !ede accountin

!eded ris$ #ust be -12.1@%

Interest rate ris# in $e&t measure$ at cost

FJ or interest rate ris# in !irm commitment

or hi'hl% "ro&a&le !orecast transaction

5rice ris# in a commo$it% owne$ or to &eacuire$ in a !irm commitment or hi'hl%

"ro&a&le !orecast transaction

FJ ris# in a net in+estment in a !orei'no"eration

S ti 12 ! d ti


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!eded ris$ #ust be -12.1@%

FJ ris# in $e&t instrument measure$ at cost is notin this list. @h%K

n$er 3:.1: FJ7 the $e&t is translate$ at

s"ot rate an$ FJ 'ain or loss is reco'nise$ in

"ro!it or loss


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!edin instru#ent #ust be -12.1>%

Interest rate swa") FJ swa") FJ !orwar$)commo$it% !orwar$

Entere$ into with external "art%

0otional amount D "rinci"al or notionalamount o! he$'e$ item

S"eci!ie$ maturit% not later than maturit% or

settlement o! he$'e$ item


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!ede of fi4ed interest rate ris$ or

co##odity price ris$ of co##odity held *eco'nise he$'in' instrument as asset or

lia&ilit%


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4(Section 12 3 !ede accountin

!ede of fi4ed interest rate ris$ or

co##odity price ris$ of co##odity held-continued

I! he$'e$ ris# was !ixe$ interest in $e&t

measure$ at cost) reco'nise in 5/6 the"erio$ic net settlements !rom the $eri+ati+e

interest rate swa"7 in the "erio$ in which

the net settlements occur.

Section 12 !ede accountin


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)4a#ple 3 Assu#ptions%

Entit% &orrows 1):::) 3 %ears) (L !ixe$ rate)"a%a&le measure$ at amortise$ cost

He$'e$ with a $eri+ati+e whose +alue is lin#e$ to

an interest rate in$ex

En$ o! %ear 1) mar#et rate D L. F o! 1):::

"a%a&le 2 %ears L D 1)::: x .;;--- D ;-:) &ut

this 11: 'ain is not reco'nise$

alue o! the $eri+ati+e $eclines to 112 0ote there is small ine!!ecti+eness D 2

48Section 12 !ede accountin


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48Section 12 3 !ede accountin Balance sheet at ti#e loan is #ade%


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4;Section 12 3 !ede accountin


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4-Section 12 3 !ede accountin

!ede of fi4ed interest rate ris$ and

co##odity price ris$ -continued =iscontinue he$'e accountin' whenC

He$'in' instrument ex"ires

He$'e no lon'er meets con$itions Entit% re+o#es $esi'nation

,n% 'ain or loss that was inclu$e$ in the

carr%in' amount o! the he$'e$ item is

amortise$ to 5/6 o+er remainin' li!e o!

he$'e$ item.

(:Section 12 3 !ede accountin


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(:Section 12 3 !ede accountin

!ede of variable interest rate ris$" F or

co##odity price ris$ of co##odity held"hihly probable forecast transaction" or net

invest#ent in forein operation

*eco'nise chan'e in F o! he$'in'instrument in O


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(1Section 12 !ede accountin

!ede of variable interest rate ris$" F or

co##odity price ris$ of co##odity held"hihly probable forecast transaction" or net

invest#ent in forein operation -continued

I! he$'e$ ris# was +aria&le interest in $e&t

measure$ at cost) reco'nise in 5/6 the

"erio$ic net settlements !rom the interest

rate swa" in the "erio$ in which the net

settlements occur.This is called


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)4a#ple 3 Assu#ptions%

Entit% sells 'oo$s !or 1)::: !loatin' rate 3%ear note recei+a&le

Interest rate ris# mana'e$ with a $eri+ati+e

interest rate swa"7 En$ o! %ear 1 interest rates increase 5

o! cumulati+e cash !lows increase &% 1::

But F o! swa" $ecreases &% 1:( 0oteC Some he$'e ine!!ecti+eness

(3Section 12 3 !ede accountin


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8penin balance sheet%

*ecei+a&le 1):::Euit% 1):::

Ineffective portion of hede%

5/6> (>O


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=eri+ati+e 6ia&ilit%7 1:(

Euit% --(

6)ffective portion of the hede -loss on

derivative" which will be a#ortised to PK: as

the hiher floatin rate interest pay#ents are

earned and reconised in PK: in years 2 K H

((Section 12 3 !ede accountin


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Section 12 !ede accountin

!ede of variable interest rate ris$ etc...

=iscontinue he$'e accountin' whenC He$'in' instrument ex"ires

He$'e no lon'er meets con$itions

Forecast transaction no lon'er "ro&a&le Entit% re+o#es $esi'nation

,n% "rior 'ain or loss on !orecast

transaction that was reco'nise$ in O


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5isclosures relatin to hede accountin

For each t%"e o! he$'eC =escri"tion o! he$'eris#) he$'e$ item) instrument7

S"ecial $isclosures !or he$'e o! !ixe$ interest

rate ris# an$ commo$it% "rice ris# o! commo$it%

hel$

S"ecial $isclosures !or he$'e o! +aria&le interest

rate ris#) FJ or commo$it% "rice ris# o!

commo$it% hel$) hi'hl% "ro&a&le !orecast

transaction) or net in+estment in !orei'n o"eration

(8Section 22 3 :iabilities and e+uity


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+ y

Scope of Section 22

5rinci"les !or classi!%in' an instrument as$e&t or euit%

Ori'inal issuance o! shares an$ other

euit% instruments Sale o! o"tions) ri'hts) warrants

Bonus issues an$ share s"lits

Issuance o! con+erti&le $e&tcontinues...

(;Section 22 3 :iabilities and e+uity


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+ y

Scope of Section 22" continued

reasur% shares =istri&utions to owners

0oncontrollin' interest an$ transactions in

shares o! a consoli$ate$ su&si$iar%

(-Section 22 3 :iabilities and e+uity


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+ y

Principles for classifyin an instru#ent as

debt or e+uity Euit% D resi$ual interest in assets minus

lia&ilities

6ia&ilit% is a "resent o&li'ation entit% $oesnot ha+e a ri'ht to a+oi$ "a%in' cash7


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1Section 22 3 :iabilities and e+uity


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The followin are liabilities%

Instrument is "a%a&le on liui$ation) &utthe amount is su&Aect to a maximum

ceilin'

Entit% is o&li'e$ to ma#e "a%ments &e!oreliui$ation such as man$ator% $i+i$en$

Man$atoril% re$eema&le "re!erence

shares



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(e#bersD shares in a cooperative are

e+uity only if%


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8riinal issuance of shares and other e+uity

instru#ents *eco'nise when euit% is issue$ an$ su&scri&er

is o&li'ate$ to in+est

I! euit% is issue$ &e!ore the entit% 'ets cash) the

recei+a&le is an o!!set to euit% not an asset7 I! entit% 'ets nonre!un$a&le7 cash &e!ore euit%

is issue$) euit% is increase$

0o increase in euit% is reco'nise$ !or su&scri&e$

shares that ha+e not &een issue$ an$ entit% has

not recei+e$ cash



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Sale of options" rihts" warrants

Same "rinci"les as !or ori'inal issuance o!shares "re+ious sli$e7

Transaction costs in issuin e+uity

instru#ents,ccounte$ !or as a re$uction o! euit% not

an ex"ense7

(Section 22 3 :iabilities and e+uity


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Bonus issues -stoc$ dividends and share

splits hese $o not chan'e euit%

,ccounte$ !or as reclassi!ication o!

amounts within euit% out o! retaine$earnin's an$ into "ermanent ca"ital7

,mounts reclassi!ie$ shoul$ &e &ase$ on

local laws

Section 22 3 :iabilities and e+uity


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Issuance of convertible debt

Must account se"aratel% !or $e&t com"onent an$euit% com"onent con+ersion ri'ht7

=e&t "rocee$s D F o! similar ris# $e&t without

con+ersion !eature 5 calculation7

Euit% "rocee$s are the resi$ual

*ecor$e$ at issuance not su&seuentl% re+ise$

Su&seuentl%) $e&t $iscount D a$$itional interest

ex"ense e!!ecti+e interest metho$7



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Issuance of convertible debt )4a#ple

1?1?J1 issue at "ar a 4L con+erti&le &on$) "ar an$

maturit% amount D (:):::) maturit% in ( %ears

I! no con+ersion !eature) woul$ ha+e "ai$ L


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5ate Interest

paid

Intereste4pense

L

A#ort. ofdiscount

Bonddis

count

7et bondliability

1&1&1 G"212 G?"@>>

H1&12&1 2"000 2"@G@ @G@ H"G? G"?H?

H1&12&2 2"000 2"@2 @2 2"@H G@"H2@H1&12&H 2"000 2">G0 >G0 1">HH G>"1@

H1&12&G 2"000 2">0 >0 GH G"0?@

H1&12&? 2"000 2"GH GH 0 ?0"000

H1&12&1% 5ebit interest e4pense 2"@G@


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Treasury shares

Euit% instruments entit% has issue$ an$later reacuire$

Measure at cash "ai$ or F o! other

consi$eration 'i+en to acuire P 5resent as $e$uction !rom euit% not

asset7

0o 'ain or loss reco'nise$ on "urchase)

sale) or cancellation

8:Section 22 3 :iabilities and e+uity


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5istributions to owners

I! cash measurement D cash "ai$ I! noncash measurement D F o! assets

$istri&ute$,mount re$uces euit%

I! entit% 'ets tax $e$uction !or $i+i$en$) tax

&ene!it is a$Austment o! euit% 0ot re$uction o! income tax ex"ense

I! entit% "a%s withhol$in' tax on $i+i$en$s"ai$) tax re$uces euit% as "art o! $i+i$en$



71/71


7oncontrollin interest -7

21 financial instruments version2011 01

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