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Financial Instruments -Mahindi - 5

The document outlines the reclassification of financial instruments under IFRS 9, IAS 32, and IFRS 7, emphasizing that reclassification is only possible for financial assets when there is a change in the business model. It details the accounting treatment for various reclassifications, including from amortized cost to fair value through profit or loss, and from fair value through other comprehensive income to amortized cost. Additionally, it specifies that no reclassifications are permitted for equity instruments and provides examples for clarity.

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Martha Eelu
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2 views10 pages

Financial Instruments -Mahindi - 5

The document outlines the reclassification of financial instruments under IFRS 9, IAS 32, and IFRS 7, emphasizing that reclassification is only possible for financial assets when there is a change in the business model. It details the accounting treatment for various reclassifications, including from amortized cost to fair value through profit or loss, and from fair value through other comprehensive income to amortized cost. Additionally, it specifies that no reclassifications are permitted for equity instruments and provides examples for clarity.

Uploaded by

Martha Eelu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Financial Instruments –

IFRS 9, IAS32 and IFRS 7


CM Mahindi
Learning Outcomes

 Reclassify financial instruments


Reclassification of financial
instruments
 Only possible for financial assets when both the following
circumstances occur:
 Change in business model, and
 the changes should have already been put into place

 Following examples are not changes:


 A change in intention related to particular FA
 the disappearance of a market for the FA
 Transfer of FA from one division of entity to another division where
the divisions operate under different BM
Accounting for change in
classification
 Reclassification date is the 1st day of the financial year after which the
change in BM was effected
 Reclassification is accounted for prospectively
 No restatement of gains, losses or interest previously recognised
 Where BM for managing a group of FA (portfolio), all the affected FA
must be reclassified

Example: 26 GGAAP 2022 edition, p.g 1042


Reclassification are only applicable
to:
 AC to FVPL (BM changes from collecting CCFs to
selling the asset, vice versa)
 AC to FVOCI-Debt (BM changes from collecting CCFs to
collecting CCFs and selling, vice versa)
 FVOCI-debt to FVPL (BM changes from collecting CCFs
and selling to just selling, vice versa)

No reclassifications are permitted for equity instruments


Reclassifying from amortised cost to
FVPL
 Determine FV on date of reclassification
 Calculate the difference b/t CA of FA measured at AC and FV. Difference
is recognised in P/L
 CA at AC = (GCA-loss allowance)
 Derecognise loss allowance on reclassification

Example 27, GGAAP 2022, pg. 1043


Reclassification from FVPL to FV OCI

 FV on reclassification date as the new CA

 thereafter, the assets and related income measured @AC, having


calculated the EIR as if the reclassification date was the date of initial
recognition

 recognise loss allowance based on credit risk that existed on the


classification date and recognise changes to this loss allowance at each
subsequent reporting date

Example 28, GGAAP 2022, pg. 1045


Reclassification from AC to FVOCI-
debt

 determine fair value on reclassification

 transfer the asset’s CA to the account identifying it as FVOCI

 remeasure the asset at FV on reclassification date and recognise


difference as adjustment in OCI

 transfer assets loss allowance a/c to loss reserve account in OCI

Example 29 p.g. 1047 GGAAP 2022


Reclassification from FVOCI-debt to
AC
 transfer asset’s CA which is @FV from FVOCI a/c to the a/c
identifying the assets as being at AC

 transfer the balance in the cumulative FV gain or loss a/c in OCI


and recognise it as an adjustment in the asset’s CA

 transfer the balance in the asset ’s expected credit loss reserve


account in OCI to the asset’s loss allowance account.

Example 30 p.g. 1049 GGAAP 2022


Transfers to and from FVOCI to FVPL

Reclassify from FVOCI to FVPL

 asset continued to be measured at FV, but cumulative gain or losses due


to FV adjustments previously recognised in OCI must be reclassified to
P/L

 likewise for cumulative gain or losses due to loss allowance adjustment


from OCI to P/L

Reclassify from FVPL to FVOCI

 asset continued to be measured at FV, but recognise FV gain or loss in


OCI and recognise a loss allowance account.

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