"Abbreviations: FV - fair value, TC - transaction costs, BS - balance sheet, PL - profit and loss statement, FVTPL - fair value through PL, FVTOCI - fair value through other comprehensive income" Financial asset Financial liability debt instrument equity instrument debt instrument equity instrument (if obligation to repay) (if no obligation to repay) at amortized cost at FVTPL at FVTOCI at amortized cost at FVTPL "(hold strategy for FA aka held to maturity securities - investments into debt securities e.g. corporate bonds, certificates of deposite, trade receivables on normal commercial terms****, which company intents to hold to maturity)" (held for trading strategy for FA aka trading investments into debt and equity securities and any fin instuments designed as FVTPL on inception e.g. investment into convertible bond with conversion option embedded in it) (hold and sell strategy for FA aka available for sale securities - investments into debt and equity securities. It is residual category which includes non-trading/non-quoted equity securities and quoted debt securities which compny doesn't intent to held to maturity or if such debt securities are subject to 2 year time-out ban as result of tained portfolio***) "(hold strategy for FL aka issued to maturity securities - issue of debt securities e.g. corporate bonds, certificates of loans, trade payables on normal commercial terms, which company intents to redeem on maturity)" (held for trading strategy for FL aka issue of trading debt and particluar equity securities (pereference redeemable stocks) and any fin instuments designed as FVTPL on inception e.g. issue of convertible bond with conversion option embedded in it) "e.g. common stocks issued, issued option for purchase of common stocks" General rules: initial measurement FV + TC in BS "FV in BS, TC in PL" FV + TC in BS FV - TC in BS "FV in BS, TC in PL" FV - TC in BS subsequent measurement amortized cost* changes in FV in PL changes in FV in OCI amortized cost "changes in FV in PL; however if change in value is due not to general % change, but due to entity credit risk change, in this case difference should be recorded in OCI" Additional notes: should be tested for impairment or revaluations? impairment testing revaluations revaluations - revaluations - "how FV, if any, is calculated?" - FV as current market price or as PV of future CF FV as current market price or as PV of future CF - FV as current market price or as PV of future CF FV as current market price or as PV of future CF (if delivery of consideration is deferred) "how amortized cost, if any, is calculated?" Par value + Effective interest - Repayment - - Par value + Effective interest - Repayment - - how transaction costs for FL are calculated? "TC = % paid, discount on issue, premium on redumption, issue costs" how TC for FL which is equity instrument are recorded in BS? TC reduce Share premium or Retained earnings accounts what can be issued as FL equity instrument? "shares issued at normal market price, bonus issue of shares (as non-cash dividends), stock right issue (issue of shares at reduced market price), covertable bond issue (ordinary shares can be deliverd at maturity instead of cash), share options issue (allow purchase shares in the future at set price)" *where fin income (calculated using effective interest method) is recognized in PL any changes in FV since the previous reporting date are recognized in OCI amounts recognized in OCI are reclassified to PL when insturment is disposed of Amortized cost = amount measuerd at intial recognition minus principal repayments plus cummulative amortization using effective % method minus any impairment loss **(held for trading - short-term investments and all derivatives not held for hedging purposes or linked to certain unquoted equity instruments; any fin instuments designed as FVTPL on inception - on initial recognition it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking and embedded derivatives can sufficiently modify the cash flows of the whole liability and are not clearly closely related to underlying lianility - e.g. conversion option embedded in a convertible bond acquired) "***Tainting Rule - An accounting rule that defines a situation (tainting) in which classification of an investment as held-to-maturity (HTM) is prohibited if the reporting entity, during the current reporting year or the two preceding years, has sold, transferred or exercised an put option on a significant amount of the investment, initially classified as held-to-maturity, before maturity date. The tainting rule prescribes a two year time-out period during which an entity is not allowed to classify any financial assets as held to maturity if the portfolio is found to have been tainted (a tainted portfolio) during the current financial year, or during the two preceding financial years." "**** If for the buyer a sale happened at better than normal commercial terms provided by seller in course of its ordinary business activity (e.g. if payment is deferred beyond normal business terms or is financed at a rate of interest that is not a market rate), such sale is considered as financing transaction and such trade receivable should be initially meausured by the seller (and related trade payable should be initially meausred by buyer) at the present value of the future payments discounted at a market rate of interest for a similar debt instrument."