Financial Assets Carried at Amortised CoFinancial Assets Carried at Amortised Cost (paragraphs 63—65)

Financial Assets Carried at Amortised Cost (paragraphs 63–65)

AG84 Impairment of a financial asset carried measured at amortised cost is measured using the financial instrument’s original effective interest rate because discounting at the current market rate of interest would, in effect, impose fair value measurement on financial assets that are otherwise measured at amortised cost. If the terms of a financial asset measured at amortised cost loan, receivable or held-to-maturity investment are renegotiated or otherwise modified because of financial difficulties of the borrower or issuer, impairment is measured using the original effective interest rate before the modification of terms. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. If a financial asset measured at amortised cost loan, receivable or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss under paragraph 63 is the current effective interest rate(s) determined under the contract. As a practical expedient, a creditor may measure impairment of a financial asset measured carried at amortised cost on the basis of an instrument’s fair value using an observable market price. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

50 Paragraphs AG95 and AG96 are amended as follows:

AG95 A financial asset measured held-to-maturity investment carried at amortised cost may be designated as a hedging instrument in a hedge of foreign currency risk.

AG96 An investment in an A derivative that is linked to and must be settled by delivery of unquoted equity instruments that is not carried at fair value because its fair value cannot be reliably measured or a derivative that is linked to and must be settled by delivery of such an unquoted equity instrument (see paragraphs 46 and 47) cannot be designated as a hedging instrument.

51 Paragraph AG114(a) is amended as follows:

AG114 ...

(a) As part of its risk management process the entity identifies a portfolio of items whose interest rate risk it wishes to hedge. The portfolio may comprise only assets, only liabilities or both assets and liabilities. The entity may identify two or more portfolios
(e.g. the entity may group its available-for-sale assets into a separate portfolio), in which case it applies the guidance below to each portfolio separately.

52 In the heading above paragraph AG133, the reference to
‘paragraphs 103-108B’ is amended to ‘paragraphs 103-108C’.