CONCEPTUAL
FRAMEWORK
&
ACCOUNTING
STANDARDS
2020 Edition
Lecture Aid
By: Zeus Vernon B. Millan
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PFRS 9 Financial Instruments
Learning Objectives
• State the classifications of financial assets and their
initial and subsequent measurements.
• State the classifications of financial liabilities and
their initial and subsequent measurements.
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Financial assets
A financial asset is any asset that is:
a. Cash;
b. Equity instrument of another entity;
c. Contractual right to receive cash or another
financial asset or to exchange financial assets or
financial liabilities with another entity under
conditions that are potentially favorable to the
entity
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Financial liabilities
A financial liability is any liability that is:
a. a contractual obligation to deliver cash or
another financial asset to another entity; or
b. a contractual obligation to exchange financial
assets or financial liabilities with another entity
under conditions that are potentially
unfavorable to the entity.
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Initial recognition and Classification
• Financial assets are recognized only when the
entity becomes a party to the contractual
provisions of the instrument.
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Basis of classification
1. The entity’s business model for managing the financial
assets; and
2. The contractual cash flow characteristics of the
financial asset.
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Equity vs. Debt instruments
• Only debt instruments can be classified under the
Amortized Cost or FVOCI (mandatory)
measurement categories.
• Equity instruments are measured at FVPL, unless
the entity makes an irrevocable election on initial
recognition to measure them at FVOCI.
• A debt instrument that is not measured at
amortized cost or at FVOCI is measured at FVPL.
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Business models
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Business models
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Business models
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Business models
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Reclassification
• After initial recognition, financial assets are reclassified
only when the entity changes its business model for
managing financial assets.
• Reclassification date is the first day of the first reporting
period following the change in business model that results
in an entity reclassifying financial assets.
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Notes on reclassification
• Only debt instruments can be reclassified. Equity
instruments (e.g., investments in shares of stocks) cannot
be reclassified.
• Financial assets cannot be reclassified into or out of the
“designated at FVPL” and “FVOCI - election”
classifications.
• The initial measurement is fair value at reclassification
date, except for a reclassification from FVOCI to
Amortized cost where the fair value on reclassification
date is adjusted for the cumulative balance of gains and
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losses previously recognized in OCI.
Impairment
• The impairment requirements of PFRS 9 apply equally to
debt-type financial assets that are measured either at
amortized cost or at FVOCI.
• Impairment gains or losses on debt instruments measured
at FVOCI are recognized in profit or loss. However, the
loss allowance shall be recognized in other comprehensive
income and shall not reduce the carrying amount of the
financial asset in the statement of financial position.
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Dividends
• Dividends received from equity securities measured at
FVPL or FVOCI (except share dividend) are recognized as
dividend revenue.
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APPLICATION OF CONCEPTS
PROBLEM 2: FOR CLASSROOM DISCUSSION
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OPEN FORUM
QUESTIONS????
REACTIONS!!!!!
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END
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