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Financial assets measured at amortised cost - can apply only to debt instruments and must be designated upon initial recognition. For the designation to be effective, the financial asset must pass two tests as follows:The business model test The cash flow characteristics testFinancial Assets
ClassificationThe business model test – must be holding the financial asset to collect in the contractual cash flows associated with that financial asset. The cash flow characteristics test – to pass this test, the contractual cash flows collected must consist solely of payment of interest and capital. Financial Assets
ClassificationA debt instrument that meets the following two conditions must be measured at FVTOCI unless the asset is designated at FVTPL under the fair value option (see below):Business model test:The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.Cash flow characteristics test:The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.All other debt instruments must be measured at fair value through profit or loss (FVTPL). Financial Assets – Debt Instruments
ClassificationAll equity investments are to be measured at fair value in the statement of financial position, with value changes recognised in profit or loss, except for those equity investments for which the entity has elected to present value changes in 'other comprehensive income'. Financial Assets - Equity
MeasurementFinancial Assets ClassificationMeasurementFVTPLInitial measurement = FV is normally cost incurred (exclude transactions costs)Subsequent Measurement: Re-measurement to fair value takes place at each reporting date, with any movement in fair value taken to profit or loss for the yearAmortised costInitial measurement = FV + transaction costSubsequent measurement – Amortised cost, annual review for impairment. Impairment losses charged to P&L.
MeasurementFinancial Assets ClassificationMeasurementFVTOCIChanges in fair value are recognized initially in Other Comprehensive Income (OCI). When the asset is derecognized or reclassified, changes in fair value previously recognized in OCI and accumulated in equity are reclassified to profit and loss
ClassificationFinancial liabilities at fair value through profit or loss (FVTPL) (financial liabilities held for trading)Other financial liabilities measured at amortised costIf financial liabilities are not measured at FVTPL, they are measured at amortised cost.Financial Liabilities