A financial liability is classified as measured at fair value through profit or

A financial liability is classified as measured at

This preview shows page 4 - 6 out of 23 pages.

A financial liability is classified as measured at fair value through profit or loss if it meets one of the following conditions: a) It meets the definition of held for trading, meaning that a. It is incurred principally for the purpose of repurchasing it in the near term; b. On initial recognition is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking; or c. Is a derivative b) Upon initial recognition (or subsequently) is designated as at fair value through profit or loss in accordance with specific guidelines in IFRS 9. A CCOUNTING FOR FINANCIAL LIABILITIES AND EQUITY At initial recognition an entity shall measure a financial liability at its fair value minus transaction costs that are directly attributable to the issue of the financial liability unless the financial liability is measured at fair value through profit or loss. In that case the transaction costs are recognised immediately in the income statement. Subsequently the liability will me measured in accordance with its classification. If an entity reacquires its own equity instruments, those instruments (‘treasury shares’) shall be deducted from equity. On initial recognition the carrying amount of a compound financial instrument is allocated to its equity and liability components. The equity component is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the liability component. For a bond convertible into ordinary shares the issuer determines the carrying amount of the liability component by measuring the fair value of a similar liability that does not have an associated equity component. D ERIVATIVES 4
Image of page 4
Part 7: Chapter 1 – Introduction to financial instruments A derivative is a financial instrument or other contract within the scope of the standards on financial instruments with all three of the following characteristics: - Its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable (sometimes called “the underlying”); - It requires no initial investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and - Is settled at a future date Derivatives are measured at fair value with changes in the fair value recognized in profit or loss, unless it is part of an effective hedge relationship. E XERCISES AND CASES D ISCUSSIONS 1. Discuss the classification of financial assets ? Why is the classification of financial assets important ?
Image of page 5
Image of page 6

You've reached the end of your free preview.

Want to read all 23 pages?

  • Summer '17
  • K B
  • Balance Sheet, Generally Accepted Accounting Principles, SOFP

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes