ias 39 ppslides

8/19/2019 Ias 39 Ppslides

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International Accounting

Standards

IAS 39 Final Instruments

Recognition an Measurement


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Preview

This module looks at:

• the recognition and measurement of financialassets and financial liabilities and

• the disclosures that need to be made in financial

statements about financial instruments!


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Objective

To e"#lain $hen financial assets and

financial liabilities should be recogni%edand ho$ the& should be measured!


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Overview

IAS 39 establishes #rinci#les for

recogni%ing measuring and disclosinginformation about financial assets and

financial liabilities!


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Scope

IAS 39 a##lies to financial instruments)$hether recogni%ed or unrecogni%ed*other than:

• Interests in subsidiaries associates and +oint,-entures )IAS 2.2/30*

• Rights and obligations under leases )IAS 0.*

• Rights and obligations under insurance contracts

)Insurance #ro+ect*• 1m#lo&ers assets and liabilities under em#lo&ee benefit #lans )IAS 09*


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Financial Asset

A financial asset is an& asset that is:

cash

• a contractual right to recei-e cash or anotherfinancial asset from another enter#rise

• a contractual right to e"change financial

instruments $ith another enter#rise under

#otentiall& fa-orable conditions or • an e4uit& instrument of another enter#rise!


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IAS 39 identifies four

categories of financial assets:! "eld for #rading

• A financial asset held for trading; is held for

the #ur#ose of generating #rofit from short,term

fluctuations in #rice or from a dealers margin!

•


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Continued-IAS 39 identifies$

%! "eld-to-&aturit' Invest(ents• A financial asset must be classified as a held,to,

maturit& in-estment $hen it #ro-ides for:

• fi"ed or determinable #a&ments and

• a fi"ed maturit& and

• the entit& has a #ositi-e intent and abilit& to hold

the financial asset to maturit&!

• Financial assets falling into categor& 3 belo$ are #rohibited from being classified as held,to,

maturit& in-estments!


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3! )oans and *eceivables Originated b'

t+e ,nterprise•

>oans and recei-ables originated b& theenter#rise are financial assets that are created b&

#ro-iding mone& goods or ser-ices directl& to a

debtor!

• >oans and recei-ables originated b& the

enter#rise are not included in held,to,maturit&

in-estments but are classified se#aratel&!


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! Available-for-Sale Financial Assets• A-ailable,for,sale financial assets are those

financial assets that are not

• loans and recei-ables originated b& the enter#rise

• held,to,maturit& in-estments or

• financial assets held for trading!


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.erivative


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/asic t'pes of derivatives

• For$ards?Futures• A )standardi%ed* contract $hich forms an obligation for one

#art& to bu& and the other to sell a s#ecific asset currenc& or

interest rate for a fi"ed #rice at a future date!

• @#tions• A contract bet$een t$o #arties $hich gi-es the bu&ing #art& the

right but not the obligation to bu& or sell an asset currenc& or

interest rate for a s#ecified #rice!

• S$a#s• An agreement made b& t$o #arties to e"change a series of cash

flo$s )for e"am#le fi"ed interest rate #a&ments for floating,rate

#a&ments* in the future!


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,(bedded .erivative

• An embedded deri-ati-e is the deri-ati-e

com#onent of a financial instrument that

includes both a deri-ati-e and a hostcontract!• If an enter#rise is re4uired b& IAS 39 to se#arate

an embedded deri-ati-e from its host contract but

is unable to se#aratel& measure the embeddedderi-ati-e it should treat the entire combined

contract as a financial instrument held for trading

)IAS 39!2*!


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Initial *ecognition

eneral Rule

• An enter#rise must recogni%e a financial

asset or a financial liabilit& )including aderi-ati-e* $hen it becomes a #art& to the

instruments contractual #ro-isions!


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0*egular 1a'2 Contracts

A regular wa' contract is a contract for the #urchase or sale of financial assets thatre4uires deli-er& of the assets $ithin the

time frame generall& established b&regulation or con-ention in the market #laceconcerned!)IAS 39!30*

• A regular $a&; purc+ase of financial assets

should be recogni%ed using trade date accounting orsettlement date accounting!

• A regular $a&; sale of financial assets should berecogni%ed using settlement date accounting!

)IAS 39!3=*


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#rade .ate Accounting

Bnder trade date accounting the financial assetand liabilit& are recogni%ed on the date the

enter#rise commits to the #urchase!


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Settle(ent .ate Accounting

Bnder settlement date accounting thefinancial asset is recogni%ed on the date it

is deli-ered!


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.erecognition of Financial Assets

• .erecognie means remo-e a financial

asset or liabilit& or a #ortion of a financial

asset or liabilit& from an enter#rises balance sheet!

• Control of an asset is the #o$er to obtain

the future economic benefits that flo$

from the asset!


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Continued-.erecognition of$

• Bnder IAS 39 a financial asset is

derecogni%ed onl& $hen the enter#rise

loses control of the contractual rights thatcom#rise the financial asset!

• An enter#rise loses control if it reali%es the

rights to benefits s#ecified in the contract

the rights e"#ire or the enter#rise

surrenders those rights! )IAS 39!3(*


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.erecognition of Part of a Financial Asset

• If an enter#rise transfers a #art of a

financial asset to others $hile retaining a

#art the carr&ing amount of the financialasset should be allocated bet$een the #art

retained and the #art sold based on their

relati-e fair -alues on the date of sale!

• A gain or loss should be recogni%ed based

on the #roceeds for the #ortion sold!


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• Fair value 4 is the amount for $hich an

asset could be e"changed or a liabilit&

settled bet$een kno$ledgeable $illing #arties in an arms length transaction!

• &ar5et value 8 is the amount obtainablefrom the sale or #a&able on the ac4uisition

of a financial instrument in an acti-e

market!


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Financial Asset .erecognition Coupled

wit+ a 6ew Financial Asset or Financial

)iabilit'If the transfer of a financial asset results in the

creation of a ne$ financial asset or the assum#tion

of a ne$ financial liabilit& the ne$ asset or liabilit&

is recogni%ed at its fair -alue! The gain or lossshould be recogni%ed on the transaction based on

the difference bet$een:• the #roceeds and

• the carr&ing amount of the financial asset sold #lus the fair -alue

of an& ne$ financial liabilit& assumed minus the fair -alue of

an& ne$ financial asset ac4uired and #lus or minus an&

ad+ustment that had #re-iousl& been re#orted in e4uit& to reflect

the fair -alue of that asset! )IAS 39!(0*


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Continued-Financial Asset$

,7a(ples:• selling a #ortfolio of recei-ables $hile assuming

an obligation to com#ensate the #urchaser of the

recei-ables if collections are belo$ a s#ecifiedle-el and

• selling a #ortfolio of recei-ables $hile retaining

the right to ser-ice the recei-ables for a fee and

the fee to be recei-ed is less than the costs ofser-icing thereb& resulting in a liabilit& for the

ser-icing obligation! )IAS 39!(2*


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.erecognition of Financial )iabilities

• A financial liabilit& is derecogni%ed onl&

$hen it is e7tinguis+ed )that is the

obligation is discharged cancelled ore"#ires*!

• A financial liabilit& is e"tinguished $hen

the enter#rise either #a&s the creditor or is

legall& released from the #rimar&

res#onsibilit&!


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• The condition is met $hen either:

• the debtor discharges the liabilit& b&

#a&ing the creditor normall& $ith cashother financial assets goods or ser-ices or

• the debtor is legall& released from #rimar&

res#onsibilit& for the liabilit& either b& #rocess of la$ or b& the creditor! )IAS

39!(/*


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.erecognition of Part of a

Financial )iabilit'iabilit&• These transactions should be accounted

for using the general re4uirements for

accounting for asset derecognition cou#led

$ith a ne$ financial asset or liabilit& as

sho$n abo-e!


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&easure(ent

Initial *ecognition• All financial assets and liabilities must be initiall&

measured at cost $hich is the fair -alue of the

consideration gi-en or recei-ed for it! Transactioncosts are included in the initial measurement of all

financial assets and liabilities! )IAS 39!*

#ransaction costs• are incremental costs that are directl& attributable to

the ac4uisition or dis#osal of a financial asset or

liabilit&!


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Continued-&easure(ent

A(ortied cost of a financial asset or

financial liabilit' is:• A(ount at initial recognition

• (inus principal repa'(ents

• plus or (inus t+e cu(ulative a(ortiation of

an' difference between t+at initial a(ount and

t+e (aturit' a(ount and

• (inus an' write-down for i(pair(ent or

uncollectibilit'


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#+e effective interest (et+od• is a method of calculating amorti%ation using the

effecti-e interest rate of a financial asset or

financial liabilit&!

#+e effective interest rate• Is the rate that e"actl& discounts the e"#ected

stream of future cash #a&ments through maturit&

or the ne"t market,based re#ricing date to the

current net carr&ing amount of the financial asset

or financial liabilit&!


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)oans and *eceivables Originated b' t+e

,nterprises and "eld-to-&aturit'

Invest(ents• >oans and recei-ables originated b& theenter#rise; and held,to,maturit& in-estments;

must be subse4uentl& measured at amorti%ed cost

using the effecti-e interest rate method if the&

ha-e a fi"ed maturit&!


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"eld for #rading and Available-for-Sale• If the fair -alue of a held for trading; or

a-ailable,for,sale; financial asset can be reliabl'

(easured it must be subse4uentl& measured atfair value )$ithout deduction of dis#osal costs*!


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• If a held for trading; or a-ailable for sale;financial asset does not ha-e a 4uoted market #rice in an acti-e market and its fair -aluecannot be reliabl' (easured it must besubse4uentl& measured as follo$s:

• if it has a fi7ed (aturit' measure the financial assetat a(ortied cost using the effecti-e interest rate

method and re-ie$ for im#airment at each balancedate

• if it has no fi7ed (aturit' measures the financialasset at cost and re-ie$ for im#airment at each

balance date!


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Subse8uent &easure(ent 4 Financial

)iabilities not .esignated as "edges

• Financial liabilities other than those that areheld for trading; and deri-ati-es that areliabilities must be subse4uentl& measured at

a(ortied cost!• After initial recognition an enter#rise should

measure liabilities held for trading andderi-ati-es that are liabilities at fair value

e"ce#t for a deri-ati-e liabilit& that is linked toand that must be settled b& deli-er& of anun4uoted e4uit& instrument $hose fair -aluecannot be measurabl& measured $hich should

be measured at cost!


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;ains and )osses on *e(easuring

Financial Instru(ents to Fair


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#esting for I(pair(ent

• At each re#orting date an enter#rise must test for

im#airment of financial assets!

• If e-idence of im#airment e"ists the enter#rise

must estimate the reco-erable amount of that

asset and recogni%e an& im#airment loss!

• An i(pair(ent loss is measured as the e"cess of

carr&ing amount o-er reco-erable amount andmust be recogni%ed immediatel& in net

#rofit?loss!


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Continued-#esting for I(pair(ent

• For loans and recei-ables; and held,to,maturit& in-estments; carried at amorti%ed cost

recoverable a(ount is measured as the #resent

-alue of the e"#ected future cash flo$s

discounted at the instruments original effecti-e

interest rate!

• For financial assets carried at cost or amorti%ed

cost because fair -alue cannot be reliabl&measured recoverable a(ount is measured as

the #resent -alue of the e"#ected future cash

flo$s discounted at the current market rate for

similar financial assets!


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"edging

• "edging in-ol-es designating a financial

instrument as an offset in $hole or in #art

to changes in the fair -alue of or cash

flo$s from a hedged item! Financial

instruments can #ro-ided certain criteria

are met be designated as hedges of:

• recognied assets or liabilities>

• fir( co((it(ents> or

• forecasted transactions


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Continued-"edging

• A +edged ite( is an asset liabilit& firm

commitment or forecasted future

transaction that

a* e"#oses the enter#rise to risk of changes

in fair -alue or changes in future cash

flo$s and that

b* for hedge accounting #ur#oses is

designated as being hedged!


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Continued-"edging

• A +edging instru(ent is a designated deri-ati-e

or another financial asset or liabilit& $hose fair

-alue or cash flo$s are e"#ected to offset

changes in the fair -alue or cash flo$s of adesignated hedged item!

• "edge effectiveness is the degree to $hich

offsetting changes in fair -alue or cash flo$s

attributable to a hedged risk are achie-ed b& the

hedging instrument!


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"edge Accounting

There are three tes of hedging relationshi#s:• a fair value +edge w+ic+ is a +edge of e7posure to

c+anges in t+e fair value of a recognied asset or

liabilit'> or an identified portion of suc+ an asset

or liabilit' t+at is attributable to a particular ris5and t+at will affect reported net inco(e

• a cas+ flow +edge w+ic+ is a +edge of e7posure to

cas+ flow variabilit' of a recognied asset or

liabilit' or a forecasted transaction> and• a +edge of a net invest(ent in a foreign entit' as

defined in IAS % #+e ,ffects of C+anges in

Foreign ,7c+anges *ates


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Continued-"edge Accounting

A hedge relationshi# 4ualifies for hedge accounting

onl& $hen:• certain formal documentation is in #lace at ince#tion

• the hedge is e"#ected to be highl& effecti-e in offsetting changes

in the fair -alue or cash flo$s of the hedged item and the hedgeeffecti-eness can be reliabl& measured

• the hedge is assessed on an ongoing basis and determined

actuall& to ha-e been highl& effecti-e during the re#orting

#eriod and

• for a cash flo$ hedge of a forecasted transaction the forecasted

transaction is highl& #robable and re#resents e"#osure to

-ariations in cash flo$s that could ultimatel& affect net

#rofit?loss

• the effecti-eness of the hedge can be reliabl& measured!


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"edge Accounting 4 Fair


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"edge Accounting 4 Cas+ Flow "edge

• Dedge accounting for a cash flo$ hedge

in-ol-es recogni%ing that #ortion of the

gain or loss on the hedging instrument

determined to be an effecti-e hedgedirectl& in e4uit&!

• The ineffecti-e #ortion is recogni%ed:

• immediatel& in net #rofit?loss if the hedginginstrument is a deri-ati-e or

• if the hedging instrument is not a deri-ati-e either

in net #rofit or loss or directl& in e4uit&!


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"edge Accounting 4 6et Invest(ent in

Foreign ,ntit'

• Dedges of net in-estments in foreign

entities are treated in the same $a& as cash

flo$ hedges!

• Therefore that #ortion of an& gain or loss

on the hedging instrument determined to be an effecti-e hedge is recogni%ed

directl& in e4uit&!


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Continued-"edge Accounting 4 6et

Invest(ents$

• The ineffecti-e #ortion is recogni%ed:• immediatel& in net #rofit?loss if the hedging

instrument is a deri-ati-e or

• directl& in e4uit& until dis#osal of the netin-estment if the hedging instrument is not aderi-ati-e!

• The gain or loss on the hedging instrument

relating to the effecti-e #ortion of thehedge should be classified in the samemanner as the foreign currenc& translationgain or loss!


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IAS 39 Financial Instru(ents:

*ecognition and &easure(ent1"am#les:

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