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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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Continued-IAS 39 identifies$
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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Continued-IAS 39 identifies$
! 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®ulation 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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2=
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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Continued-.erecognition of$
• Fair value 4 is the amount for $hich an
asset could be e"changed or a liabilit&
settled bet$een kno$ledgeable $illing #arties in an arms length transaction!
• &ar5et value 8 is the amount obtainablefrom the sale or #a&able on the ac4uisition
of a financial instrument in an acti-e
market!
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2'
Financial Asset .erecognition Coupled
wit+ a 6ew Financial Asset or Financial
)iabilit'If the transfer of a financial asset results in the
creation of a ne$ 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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2(
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 $hen
the enter#rise either #a&s the creditor or is
legall& released from the #rimar&
res#onsibilit&!
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2.
Continued-.erecognition of$
• 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 $hich is the fair -alue of the
consideration gi-en or recei-ed for it! Transactioncosts are included in the initial measurement of all
financial assets and liabilities! )IAS 39!*
#ransaction costs• are incremental costs that are directl& attributable to
the ac4uisition or dis#osal of a financial asset or
liabilit&!
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Continued-&easure(ent
A(ortied cost of a financial asset or
financial liabilit' is:• A(ount at initial recognition
• (inus principal repa'(ents
• plus or (inus t+e cu(ulative a(ortiation of
an' difference between t+at initial a(ount and
t+e (aturit' a(ount and
• (inus an' write-down for i(pair(ent or
uncollectibilit'
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Continued-&easure(ent
#+e effective interest (et+od• is a method of calculating amorti%ation using the
effecti-e interest rate of a financial asset or
financial liabilit&!
#+e effective interest rate• Is the rate that e"actl& discounts the e"#ected
stream of future cash #a&ments through maturit&
or the ne"t market,based re#ricing date to the
current net carr&ing amount of the financial asset
or financial liabilit&!
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Continued-&easure(ent
)oans and *eceivables Originated b' t+e
,nterprises and "eld-to-&aturit'
Invest(ents• >oans and recei-ables originated b& theenter#rise; and held,to,maturit& in-estments;
must be subse4uentl& measured at amorti%ed cost
using the effecti-e interest rate method if the&
ha-e a fi"ed maturit&!
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3'
Continued-&easure(ent
"eld for #rading and Available-for-Sale• If the fair -alue of a held for trading; or
a-ailable,for,sale; financial asset can be reliabl'
(easured it must be subse4uentl& measured atfair value )$ithout deduction of dis#osal costs*!
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3(
Continued-&easure(ent
• 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 $hich should
be measured at cost!
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3.
;ains and )osses on *e(easuring
Financial Instru(ents to Fair
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#esting for I(pair(ent
• At each re#orting date an enter#rise must test for
im#airment of financial assets!
• If e-idence of im#airment e"ists the enter#rise
must estimate the reco-erable amount of that
asset and recogni%e an& im#airment loss!
• An i(pair(ent loss is measured as the e"cess of
carr&ing amount o-er reco-erable amount andmust be recogni%ed immediatel& in net
#rofit?loss!
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Continued-#esting for I(pair(ent
• For loans and recei-ables; and held,to,maturit& in-estments; carried at amorti%ed cost
recoverable a(ount is measured as the #resent
-alue of the e"#ected future cash flo$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: