Division Definitions of Four Categories of Financ - AASB 2009-11 - Amendments to Australian Accounting Standards arising from AASB 9 - December 2009 - Definitions of Four Categories of Financial Instruments | Zoe
AASB 2009-11 - Amendments to Australian Accounting Standards arising from AASB 9 - December 2009
Definitions of Four Categories of FinancDefinitions of Four Categories of Financial Instruments
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Definitions of Four Categories of Financial Instruments
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A financial asset or financial liability is held for trading if:
(a) it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term;
(b) on initial recognition it 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) it is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).
A financial asset or financial liability at fair value through profit or loss is a financial asset or financial liability that meets either of the following conditions.
(a) It is classified as meets the definition of held for trading. A financial asset or financial liability is classified as held for trading if:
(i) it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term;
(ii) on initial recognition it 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
(iii) it is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).
(b) Upon initial recognition it is designated by the entity as at fair value through profit or loss. An entity may use this designation only when permitted by paragraph 11A, or when doing so results in more relevant information, because either
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(ii) a group of financial assets, financial liabilities or both financial assets and financial liabilities 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 (as defined in AASB 124 Related Party Disclosures), for example the entity’s board of directors and chief executive officer.
In AASB 7, paragraphs 9–10 and 11 and B4 require the entity to provide disclosures about financial assets and financial liabilities it has designated as at fair value through profit or loss, including how it has satisfied these conditions (see paragraphs B4 and B5 of AASB 7). For instruments qualifying in accordance with (ii) above, that disclosure includes a narrative description of how designation as at fair value through profit or loss is consistent with the entity’s documented risk management or investment strategy.
Investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured (see paragraph 46(c) and Appendix A paragraphs AG80 and AG81), shall not be designated as at fair value through profit or loss.
It should be noted that paragraphs 48, 48A, 49 and Appendix A paragraphs AG69-AG82, which set out requirements for determining a reliable measure of the fair value of a financial asset or financial liability, apply equally to all items that are measured at fair value, whether by designation or otherwise, or whose fair value is disclosed.
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38 In paragraph 9 the terms ‘held-to-maturity investments’, ‘loans and receivables’ and ‘available-for-sale financial assets’ are deleted.
39 Paragraphs 10-11A, 13 and 14 are amended as follows:
10 An embedded derivative is a component of a hybrid (combined) contract instrument that also includes a non-derivative host contract – with the effect that some of the cash flows of the combined contract instrument vary in a way similar to a stand-alone derivative. An …
11 An embedded derivative shall be separated from the host contract and accounted for as a derivative under this Standard if, and only if:
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(b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and
(c) the hybrid (combined) contract instrument is not measured at fair value with changes in fair value recognised in profit or loss (i.e. a derivative that is embedded in a financial asset or financial liability at fair value through profit or loss is not separated).; and
(d) the host is outside the scope of AASB 9.
If an embedded derivative is separated, the host contract shall be accounted for under this Standard if it is a financial instrument, and in accordance with the other appropriate Australian Accounting Standards Standards if it is not a financial instrument. This Standard does not address whether an embedded derivative shall be presented separately in the statement of financial position.
11A Notwithstanding paragraph 11, if a contract contains one or more embedded derivatives and the host is outside the scope of AASB 9, an entity may designate the entire hybrid (combined) contract as a financial asset or financial liability at fair value through profit or loss unless:
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13 If an entity is unable to determine reliably the fair value of an embedded derivative on the basis of its terms and conditions (for example, because the embedded derivative is based on an unquoted equity instrument), the fair value of the embedded derivative is the difference between the fair value of the hybrid (combined) contract instrument and the fair value of the host contract, if those can be determined under this Standard. If the entity is unable to determine the fair value of the embedded derivative using this method, paragraph 12 applies and the hybrid (combined) contract instrument is designated as at fair value through profit or loss.
14 An entity shall recognise a financial asset or a financial liability in its statement of financial position when, and only when, the entity becomes a party to the contractual provisions of the instrument. (See paragraph 38 with respect to regular way purchases of financial assets.)
40 Paragraphs 26, 27(b), 31, 33 and 34 are amended as follows:
26 On derecognition of a financial asset in its entirety, the difference between:
(a) the carrying amount (measured at the date of derecognition); and
(b) the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in other comprehensive income (see paragraph 55(b));
shall be recognised in profit or loss.
27 … The difference between:
(a) …
(b) the sum of (i) the consideration received for the part derecognised (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss allocated to it that had been recognised in other comprehensive income (see paragraph 55(b))…
shall be recognised in profit or loss. A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is derecognised, based on the relative fair values of those parts.
31 When an entity continues to recognise an asset to the extent of its continuing involvement, the entity also recognises an associated liability. Despite the other measurement requirements in this Standard and AASB 9, the transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the entity has retained. The associated liability is …
(a) ...
33 For the purpose of subsequent measurement, recognised changes in the fair value of the transferred asset and the associated liability are accounted for consistently with each other in accordance with paragraph 55 and AASB 9 paragraph 5.4.1, and shall not be offset.
34 …The difference between:
(a) the carrying amount (measured at the date of derecognition) allocated to the part that is no longer recognised; and
(b) the sum of (i) the consideration received for the part no longer recognised and (ii) any cumulative gain or loss allocated to it that had been recognised in other comprehensive income (see paragraph 55(b));
shall be recognised in profit or loss. A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised, on the basis of the relative fair values of those parts.
41 In the section titled ‘Measurement’ the following are deleted: the headings above paragraphs 45, 63, 66 and 67; and paragraphs 45, 46, 50B-52, 61 and 66-70 and notes regarding the IASB deletions are added. The headings above paragraphs 43 and 58 and paragraphs 43, 44, 47, 48, 50, 50A, 53-58 and 63 are amended as follows: