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Financial Instruments: Classification and Measurement

Financial Instruments: Classification and Measurement. Update. Scope of Classification and Measurement requirements. Classification criteria. The ‘other’ measurement attribute. Accounting for embedded derivatives. Fair Value Option. Cost exemption for unquoted equity instruments.

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Financial Instruments: Classification and Measurement

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  1. Financial Instruments: Classification and Measurement Update

  2. Scope of Classification and Measurement requirements

  3. Classification criteria

  4. The ‘other’ measurement attribute

  5. Accounting for embedded derivatives

  6. Fair Value Option

  7. Cost exemption for unquoted equity instruments

  8. Reclassification

  9. Presentation option for equity instruments not held-for-trading

  10. Financial assets acquired at a discount

  11. Concentrations of credit risk

  12. Timetable • Final requirements expected in November to enable early adoption for financial years ending on or after31 December 2009 • Mandatory application date expected for periods beginning on or after 1 January 2013 • US FASB ED covering classification & measurement, impairment and hedging expected early 2010

  13. Observations Embedded derivatives – on early adopting • hybrids with financial asset hosts to be required to apply the criteria to assess the classification and measurement of the hybrid in its entirety • hybrids with financial liability and non-financial hosts to be required to apply existing IAS 39 requirements which will possibly result in ‘bifurcation’ of the hybrid

  14. Observations Fair Value Option – on early adopting • financial assets will only be able to be designated at fair value where there is an accounting mismatch • financial liabilities will be able to be designated at fair value in accordance with existing IAS 39 – that is, when (a) there is an accounting mismatch; (b) the liability is managed or its performance evaluated on a FV basis; or (c) there is an embedded derivative that cannot be separately recognised and measured

  15. Observations Dividends on non-traded equity investments that are a ‘return on investment’ are presented in profit or loss • IAS 27 used to require different accounting treatment for pre- and post-acquisition dividends under the cost method for subsidiaries in separate financial statements • the same issues that arose in distinguishing between pre- and post-acquisition dividends may arise in identifying ‘returns on’ versus ‘returns of’ investment in allocating dividends where the election to present FV changes in OCI is made

  16. Financial Instruments: Classification and Measurement Update

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