BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Financial asset at amortized cost
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Financial asset at fair value through profit or loss
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Either A or B
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Neither A nor B
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Detailed explanation-1: -IFRS 9 identifies three types of business models: ‘hold to collect’, ‘hold to collect and sell’ and ‘other’. If a non-equity financial asset is not held in a ‘hold to collect’ business model, it will not be possible to classify it as amortised cost.
Detailed explanation-2: -Consequently, IFRS 9 allows entities to apply a ‘simplified approach’ for trade receivables, contract assets and lease receivables. The simplified approach allows entities to recognise lifetime expected losses on all these assets without the need to identify significant increases in credit risk.
Detailed explanation-3: -Receivables and loans of all types are considered financial assets because they represent a contract that conveys to their holder a contractual right to receive cash or another financial instrument from another entity.
Detailed explanation-4: -Financial assets: subsequent measurement Subsequent to initial recognition, all assets within the scope of IFRS 9 are measured at: amortised cost; • fair value through other comprehensive income (FVTOCI); or • fair value through profit or loss (FVTPL).