Chapter 4 ClassificationChapter 4 Classification

Chapter 4 Classification

4.1 Unless paragraph 4.5 applies, an entity shall classify financial assets as subsequently measured at either amortised cost or fair value on the basis of both:

(a) the entity’s business model for managing the financial assets; and

(b) the contractual cash flow characteristics of the financial asset.

4.2 A financial asset shall be measured at amortised cost if both of the following conditions are met:

(a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows.

(b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Paragraphs B4.1-B4.26 provide guidance on how to apply these conditions.

4.3 For the purpose of this Standard, interest is consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time.

4.4 A financial asset shall be measured at fair value unless it is measured at amortised cost in accordance with paragraph 4.2.