SBRINT
Syllabus C. Reporting The Financial Performance Of A Range Of Entities C3. Financial Instruments

C3b. Financial Liabilities - Amortised Cost 3 / 15

Syllabus C3b)

Discuss and apply the subsequent measurement of financial assets and financial liabilities.

So, we’ve just looked at initial measurement (at FV) Now let’s look at how we measure it from then onwards….

This is where the categories of financial liabilities are important - so let’s remind ourselves what they are:

Initially At Year-End Any gain/loss
FVTPL Fair Value Fair Value Income Statement
Amortised Cost Fair Value Amortised Cost -

So you only have 2 rules to remember - cool…

  1. FVTPL

    - simple just keep the item at its FV (remember this is those 2 steps) and put the difference to the income statement

  2. Amortised Cost

    - Amortised Cost is the measurement once the initial measurement at FV is done

Amortised Cost

This is simply spreading ALL interest over the length of the loan by charging the effective interest rate to the income statement each year.

If there’s nothing strange (premiums etc) then this is simple. For example

10% 1,000 Payable Loan

Opening Interest to I/S Interest actually Paid Closing Loan on SFP
1,000 100 (100) 1,000

Now let’s make it trickier

10% 1,000 Loan with a 10% premium on redemption . Effective rate is 12%

Opening Interest to I/S Interest actually Paid Closing Loan on SFP
1,000 120 (100) 1,020


So in year 1 the income statement would show an interest charge of 120 and the loan would be under liabilities on the SFP at 1,020. This SFP figure will keep on increasing until the end of the loan where it will equal the Loan + premium on redemption.


And trickier still…

10% 1,000 loan with a 10% discount on issue. Effective rate is 12%

Opening Interest to I/S Interest actually Paid Closing Loan on SFP
900 108 (100) 908

IFRS 9 requires FVTPL gains and losses on financial liabilities to be split into:

  1. The gain/loss attributable to changes in the credit risk of the liability (to be placed in OCI)

  2. The remaining amount of change in the fair value of the liability which shall be presented in profit or loss.

The new guidance allows the recognition of the full amount of change in the FVTPL only if the recognition of changes in the liability's credit risk in OCI would create or enlarge an accounting mismatch in P&L.

Amounts presented in OCI shall not be subsequently transferred to P&L, the entity may only transfer the cumulative gain or loss within equity.