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Ind As 109

The document discusses the classification and measurement of financial instruments under Ind AS 109. It defines financial assets and instruments and outlines five categories of financial assets - contracts to receive cash, cash, equity instruments, contracts to receive other financial assets, and contracts to exchange financial assets. Financial assets can be classified into three categories - debt instruments, equity instruments, and derivative instruments. Debt instruments are further classified based on the business model and contractual cash flow characteristics into three groups - amortized cost, fair value through other comprehensive income, and fair value through profit or loss. The document provides details on the criteria for each classification.

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246 views6 pages

Ind As 109

The document discusses the classification and measurement of financial instruments under Ind AS 109. It defines financial assets and instruments and outlines five categories of financial assets - contracts to receive cash, cash, equity instruments, contracts to receive other financial assets, and contracts to exchange financial assets. Financial assets can be classified into three categories - debt instruments, equity instruments, and derivative instruments. Debt instruments are further classified based on the business model and contractual cash flow characteristics into three groups - amortized cost, fair value through other comprehensive income, and fair value through profit or loss. The document provides details on the criteria for each classification.

Uploaded by

ashmit bahl
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Financial Instruments

Ind AS 109 = Recognition & Measurement (Accounting)


Meaning of Financial Instruments -
As per the provisions of Ind AS 32, Financial Instrument is a contract between 2
parties where It can be a Financial Asset for one party & Financial Liability or Equity
Instrument for other party.

Meaning of -Financial Assets –


A) Contract to Receive Cash: Trade Receivables, Investment in Redeemable
Debentures/Preference shares, Loans Receivables, Deposits with Bank for more
than 1 year. OR

B) Cash: Cash in Hand, Balances with Banks, Cash Equivalent(90days) etc. OR

C) Equity Instrument: Investment in Equity Shares (i.e.; Equity holders have


contract to receive Cash/Shares in Residual Interest of Company on Pro rata
basis at the time of Liquidation of Company.) OR

D) Contract to receive other Financial Asset: (i) Debtors= Bills Receivables (ii)
Investment in Convertible Debenture/Pref.= Equity Shares OR

E) Contract to Exchange Financial Asset/Financial Liabilities under Favorable


conditions: [Options, futures or forwards which are in profit at Balance Sheet
date]
Classification & Measurement of Financial
Assets (Ind AS-109)
Financial Assets can be classified under 3 main Headings:-
 Debt Instrument-All Receivables i.e.; Debtors, B/R, Invt in Redeemable Bonds,
Redeemable Debentures or PSC, Fixed Deposits, Loan Receivable or Any other
contractual right To receive Cash.
 Equity Instrument- Invt in Equity shares or Convertible Instruments.
 Derivative Instrument-Options, Futures and Forwards etc.

Other concept-
 BUSINESS MODEL-
a. A matter of fact and not merely an assertion.
b. Determined by entity’s key management personnel (KMP).
c. Determined at a level that reflects how groups of financial assets are managed
together to achieve a particular business objective.
 CONTRACTUAL CASH FLOWS CHARACTERISTICS
a. *CCFC means interest should be normal interest as per normal lending
arrangements. If interest covers time value of money, credit risk of instrument
& transaction cost etc. Then it will be covered as normal interest.
b. If rate of interest fluctuates due to entity performance or it is a variable rate
as per market conditions then it will be taken as leveraged rate.

Debt Instruments-
Debt Instruments can be classified under 3 further headings as follows:-
 BM I + CCFC = Amortised Methods
Conditions should be satisfied-
1. The entity’s intention should be to hold such asset till its maturity & entity will
not sell it before its maturity. +
2. The cash flows from such asset shall include principal & interest (both). +
3. The conditions of ccfc* should also be satisfied.
 Business Model II & Contractual Cash
Flow Characteristics (BM II + CCFC)
Conditions should be satisfied –
1. The entity will not hold the financial asset till its maturity, but it will recover its
principal by selling it & till the date of selling it, interest will be received. +
2. Such financial asset should have principal & interest(both) features. +
3. The condition of ccfc of interest should also be satisfied.

 Business Model III


1. If any asset/receivable cannot be classified under BM I or BM II then it will be
classified under BM III i.e. – If there is no Interest in any Financial Asset or
Interest has Leverage Impact.

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