Two measurement categories continue to exist fair value and amortized cost

Two measurement categories continue to exist fair

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Two measurement categories continue to exist: fair value and amortized cost. Financial liabilities held for trading are measured at fair value, and all other financial liabilities are measured at amortized cost unless the fair value option is applied. IFRS No. 9 contains an option to designate a financial liability as measured at fair value if either o Doing so eliminates or significantly reduces a measurement or recognition inconsistency, sometimes referred to as an accounting mismatch , that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases o The liability is part or a group of financial liabilities or financial assets and financial liabilities that is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity's key management personnel A financial liability that does not meet any of these criteria may still be designated as measured at fair value when it contains one or more embedded derivatives that would require separation. IFRS No. 9 requires gains and losses on financial liabilities designated as at fair value to be split into the amount of change in the fair value that is attributable to changes in the credit risk of the liability, which shall be presented in other comprehensive income, and the remaining amount of change in the fair value of the liability, which shall be presented in net income. The new guidance allows the recognition of the full amount of change in the fair value in the profit or loss only if the recognition of changes in the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. That determination is made at initial recognition and is not reassessed. All derivatives, including those linked to unquoted equity investments, are to be measured at fair value. Fair value changes are recognized on the income statement unless the entity has elected to treat the derivative as a hedging instrument in accordance with IAS No. 39 (more specifically the effective portion of cash flow hedges and hedges of the net investment in a foreign operation), in which case the requirements of IAS No. 39 apply. An embedded derivative is defined as a component of a hybrid contract that also includes a nonderivative host, with the effect that some of the cash flows of the combined instrument vary in a way similar to a standalone derivative. A derivative that is attached to a financial instrument but is contractually transferable independently of that instrument, or has a different counterparty, is not an embedded derivative but a separate financial instrument.
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