IFRS 9

Financial Instruments

Part II: Classification and measurement

IFRS Foundation
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IFRS Foundation
Agenda 3

Classification of financial assets and financial

liabilities
Derivatives
Embedded derivatives
Reclassification of financial assets
Measurement of financial assets and financial
liabilities
Estimates and other judgements

IFRS Foundation
 4

Classification

IFRS Foundation
 Classification
Financial assets 5

Step 1 Business
Business Other
model = hold
Step 2 model = hold business
to collect and
to collect models
sell

Cash flows are

solely payments of Amortised
principal and
FVOCI* FVTPL
cost
interest (SPPI)

Other types of
cash flows
FVTPL FVTPL FVTPL

*Excludes investments in equity instruments. An entity can elect to present FV changes in OCI.
IFRS Foundation
Classification of financial assets
Fair value through profit or loss (FVTPL) 6

Residual Fair value

category option
Designated at initial
recognition -
If a financial asset eliminates or reduces
does not fit in another accounting mismatch
category it is
automatically FVTPL Note: the option to
designate is
irrevocable

IFRS Foundation
Classification of financial assets
Fair value through other comprehensive income 7

Requirements for investments in equity instruments

Irrevocable election for particular investments in equity instruments that
would otherwise be measured at FVTPL
Condition: neither held for trading nor contingent consideration (IFRS 3)
Held for trading (definition)
Acquired or incurred principally for the purpose of selling or repurchasing
it in the near term
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
Derivative (except for a derivative that is a financial guarantee contract or
a designated and effective hedging instrument)

Election made on an instrument-by-instrument basis

IFRS Foundation
Contractual cash flow characteristics (step 1) 8
Financial assets with contractual cash flows that are solely payments of
principal and interest (SPPI) are measured at amortised cost or FVOCI
depending on the business model in which the asset is held.
Principal = amount transferred by holder (fair value at initial recognition)
Interest is consideration for:
time value of money and credit risk;
other lending risks (for example, liquidity risk);
other associated costs (for example, administrative costs); and
a profit margin

IFRS Foundation
Contractual cash flow characteristics (step 1)

(continued) 9

Exception for regulated rates

government or regulatory authority sets interest rates where the time
value of money (TVM) element does not provide consideration for only
the passage of time
the regulated interest rate may be a proxy for the TVM element if the rate
provides consideration that is broadly consistent with the passage of time
and does not provide exposure to risks or volatility that is inconsistent with
a basic lending arrangement
Simplified the test for a modified economic relationship:
the TVM element is not perfect, for example, the rate is periodically reset
to an average of short- and long-term rates
assess modification of the TVM element to determine whether contractual
cash flow represent SPPI
qualitative or quantitative assessment of TVM element

IFRS Foundation
 Example 1:* contractual cash flow characteristics
Solely payments of principal and interest on the principal amount
outstanding 10

Instrument A is a bond with a stated maturity date.

Payments of principal and interest on the principal
amount outstanding are linked to an inflation index of the
currency in which the instrument is issued.
The inflation link is not leveraged and the principal is
protected.

*
Refer to paragraph B4.1.13 of IFRS 9 Financial IFRS Foundation
Instruments
 Example 2:* contractual cash flow characteristics
Solely payments of principal and interest on the principal amount
outstanding 11

Instrument B is a variable interest rate instrument with a stated

maturity date that permits the borrower to choose the market
interest rate on an ongoing basis.
For example, at each interest rate reset date, the borrower can
choose to pay three-month LIBOR for a three-month term or
onemonth LIBOR for a one-month term.

*
Refer to paragraph B4.1.13 of IFRS 9 Financial IFRS Foundation
Instruments
 Example 3:* contractual cash flow characteristics
Solely payments of principal and interest on the principal amount
outstanding 12

Instrument C is a bond with a stated maturity date and pays a

variable market interest rate.
That variable interest rate is capped.

*
Refer to paragraph B4.1.13 of IFRS 9 Financial IFRS Foundation
Instruments
 Example 4:* contractual cash flow characteristics
Solely payments of principal and interest on the principal amount
outstanding 13

Instrument D is a full recourse loan and is secured by collateral.

*
Refer to paragraph B4.1.13 of IFRS 9 Financial IFRS Foundation
Instruments
 Example 5:* contractual cash flow characteristics
Solely payments of principal and interest on the principal amount
outstanding 14

Instrument E is issued by a regulated bank with a stated maturity

date.
pays a fixed interest rate and all contractual cash flows are non-
discretionary.
Issuer subject to legislation that permits or requires a national
resolving authority to impose losses on holders of particular
instruments, including Instrument E, in particular circumstances.
For example, the national resolving authority has the power to
write down the par amount of Instrument E or to convert it into a
fixed number of the issuers ordinary shares if the national
resolving authority determines that the issuer is having severe
financial difficulties, needs additional regulatory capital or is
failing.
*
Refer to paragraph B4.1.13 of IFRS 9 Financial IFRS Foundation
Instruments
 Example 6:* contractual cash flow characteristics
NOT solely payments of principal and interest on the principal
amount outstanding 15

Instrument F

A bond that is convertible into a fixed number of equity instruments of the

issuer.

Instrument G

A loan that pays an inverse floating interest rate (ie the interest rate has an
inverse relationship to market interest rates).

Instrument H

A perpetual instrument but the issuer may call the instrument at any point
and pay the holder the par amount plus accrued interest due.
The instrument pays market interest rate but payment of interest cannot be
made unless the issuer is able to remain solvent immediately afterwards.
Deferred interest does not accrue additional interest.

*
Refer to paragraph B4.1.14 of IFRS 9 Financial IFRS Foundation
Instruments
Types of business model (step 2) 16

Holding assets in Both collecting

order to collect contractual cash Other business
contractual cash flows and selling models
flows financial assets

Realise cash flows by
collecting contractual
payments over the life
of the instrument
Both collecting
contractual cash flows
Neither held to collect
and selling sale
nor held to collect and
integral to achieving
for sale
the objective of the
business model

Collection of
Typically involve lower Typically involve
contractual cash flows
frequency and value of greater frequency and
is incidental to the
sales value of sales
objective of the model

Measurement:
Measurement: FVOCI Measurement: FVTPL
amortised cost

IFRS Foundation
 Example 7:* business model
Holding financial assets to collect the contractual cash flows 17

Entity A holds investments to collect their contractual cash flows.

Entity A performs credit risk management activities to minimise
credit losses.
In the past, sales have typically occurred when the financial assets
credit risk has increased, ie credit criteria specified in the entitys
documented investment policy no longer met.
Infrequent sales have occurred as a result of unanticipated funding
needs.
Reports to key management personnel focus on the credit quality of
the financial assets and the contractual return.
Entity A also monitors fair values of the financial assets, among other
information.

*
Refer to Example 1 in paragraph B4.1.4 of IFRS 9 IFRS Foundation
Financial Instruments
 Example 8:* business model
Holding financial assets to collect the contractual cash flows 18

Originates
Entity loan Customers

Payment of contractual
cash flows

Sells loan
Transfer of
contractual cash
flows

Securitisation Issues instrument

Controls consolidate Investors
vehicle
Assume that the loans continue to be recognised in the consolidated statement of
financial position because they are not derecognised by the securitisation vehicle.

*
Refer to Example 3 in paragraph B4.1.4 of IFRS 9 IFRS Foundation
Financial Instruments
 Example 9:* an entitys business model
Objective may be to hold financial assets to collect the contractual cash
flows. 19

A financial institution holds financial assets to meet liquidity needs

in a stress case scenario.
No sale is anticipated except in such scenarios.
Credit quality of the financial assets is monitored
Objective in managing the financial assets: collect the contractual
cash flows.
Financial assets are monitored on the basis of their fair value from
a liquidity perspective
Objective: cash amount that would be realised in a stress case scenario
would be sufficient to meet the entitys liquidity needs.
Periodically, the entity makes sales that are insignificant in value to
demonstrate liquidity.

*
Refer to Example 4 in paragraph B4.1.4 of IFRS 9 IFRS Foundation
Financial Instruments
 Example 10:* an entitys business model
Both collecting contractual cash flows and selling financial assets 20

A financial institution holds financial assets to meet its everyday

liquidity needs.
The entity seeks to minimise the costs of managing those liquidity
needs and therefore actively manages the return on the portfolio.
Return = collecting contractual payments + gains and losses from
the sale of financial assets.
The entity holds financial assets to collect contractual cash flows
and sells financial assets to reinvest in higher yielding financial
assets or to better match the duration of its liabilities.
In the past, this strategy has resulted in frequent sales activity of
significant value.
This activity is expected to continue in the future.
*
Refer to Example 6 in paragraph B4.1.4C of IFRS 9 IFRS Foundation
Financial Instruments
Classification
Financial liabilities 21

1. At fair value through

2. Amortised cost
profit or loss
Held for trading,
including derivative
liabilities that are not
accounted for as
hedging instruments
Derivative liabilities
that are accounted for
as hedging
instruments
Fair value option
designated at inception IFRS Foundation
Definition of derivative 22

Value
Requires little
changes in
or no initial Settled at a
response to
net future date
the change in
investment
the underlying

IFRS Foundation
Examples of derivatives and underlyings 23

Type of contract Main pricing-settlement variable

(underlying variable)
Interest rate swap Interest rates
Currency swap (foreign exchange swap) Currency rates
Commodity swap Commodity prices
Equity swap Equity prices (equity of another entity)
Purchased or written treasury bond option (call Interest rates
or put)
Interest rate futures linked to government debt Interest rates
(treasury futures)
Currency futures Currency rates
Currency forward Currency rates
Commodity forward Commodity prices
Equity forward Equity prices (equity of another entity)

IFRS Foundation
 Embedded derivatives 24

What is an embedded derivative?

A component of a hybrid contract that also includes a non-derivative
host with the effect that some of the cash flows of the combined
instrument vary in a way similar to a stand-alone derivative

Example: equity kicker

Venture capital entities providing subordinated loans agree that if and when
the borrower lists its shares on a stock exchange, the venture capital entity
is entitled to receive shares of the borrowing entity free of charge or at a
very low price (an equity kicker) in addition to the contractual payments.

IFRS Foundation
Accounting for embedded derivatives 25

Does the hybrid contract contain a host that is an asset within the scope of IFRS 9?
Yes No
Apply the requirements for Separate embedded derivative from host and account for
classification of financial as a derivative under IFRS 9 if the following three
assets in IFRS 9 to the conditions are satisfied:
entire hybrid contract

economic the hybrid

characteristics a separate contract is not
and risks of the instrument with measured at
embedded the same terms FVTPL (ie a
derivative are not as the derivative that
closely related to embedded is embedded in
the economic derivative would a financial
characteristics meet the liability at
and risks of the definition of a FVTPL is not
host derivative separated)
IFRS Foundation
 Reclassification
Conditions 26

Financial assets
When, and only when, an entity changes
its business model for managing financial
assets expected to be very infrequent
Financial liabilities
An entity shall not reclassify any financial
liability
Reclassification shall be applied prospectively from the reclassification date.
IFRS Foundation
 Changes in business model 27

Examples of change in business model: Not a change in business model

1. An entity has a portfolio of commercial loans A change in intention related to
that it holds to sell in the short term. particular financial assets (even
o The entity acquires a company that manages in circumstances of significant
commercial loans and has a business model changes in market conditions).
that holds the loans in order to collect the The temporary disappearance of
contractual cash flows. a particular market.
o The portfolio of commercial loans is no longer A transfer of financial assets
for sale, and the portfolio is now managed between parts of the entity with
together with the acquired commercial loans different business models.
and all are held to collect the contractual
cash flows.
2. A financial services firm decides to shut down
its retail mortgage business - no longer accepts
new business and the financial services firm is
actively marketing its mortgage loan portfolio for
sale.

IFRS Foundation
 28

Measurement

IFRS Foundation
Measurement at Initial Recognition 2929

Adjusted for
transaction Costs

Initial Initial
carrying = Fair value carrying Initial
amount amount carrying
amount

Asset or Liability Asset Liability

Measured at Measured Measured
FVTPL at other at other
than FVTPL than FVTPL

IFRS Foundation
 Example 11:* accounting for transaction costs
Initial and subsequent measurement - FVOCI 30

An entity acquires a financial

asset for CU100 plus a purchase
commission of CU2.

The reporting period ends one

day later, when the quoted market
price of the asset is CU100.

If the asset were sold, a

commission of CU3 would be
paid.
*
Refer to paragraph B5.2.2 of IFRS 9 Financial IFRS Foundation
Instruments
 Fair value versus transaction price 31

Best evidence of the fair value of a financial instrument at initial recognition is normally
the transaction price.
If fair value at initial recognition differs from transaction price:
If fair value is evidenced by a quoted price in an active market for an identical asset or
liability or based on valuation technique that uses only data from observable markets
Recognise the difference between the fair value at initial recognition and the
transaction price as a gain or loss
In all other cases:
o At initial recognition: defer the difference
o After initial recognition: recognise that deferred difference as a gain or loss only to
the extent that it arises from a change in a factor that market participants would take
into account
If part of the consideration might not be for the financial instrument itself, eg
Interest free loan to a subsidiary
Providing below-market interest rate loan for rebates or minimum purchase volume
regarding other items
o In the cases above, an entity measures the fair value of the financial instruments

IFRS Foundation
Subsequent measurement of financial asset
Amortised cost 32

Statement of Other
financial Profit or loss Comprehensiv
position e Income
Interest revenue using
effective interest method

Impairment
Amortised cost Nil
Foreign exchange gains
& losses

Gain or loss on
derecognition

IFRS Foundation
Subsequent measurement of financial asset
Fair value through OCI (debt instruments) 33

Statement
Other
of
Profit or loss Comprehensiv
financial
e Income
position
Interest revenue
Fair value change
using effective
other than those
interest method
recognised in profit
or loss
Fair value Impairment
(amounts
accumulated are
Foreign exchange recycled to P&L
gains & losses upon derecognition)

IFRS Foundation
 Example 12:* Subsequent measurement of financial asset
Debt instrument measured at FVOCI 34

FV of debt instrument = CU1,000 on 15 December 20X0 (measured at FVOCI).

5% interest rate over the contractual term of 10 years.
Effective interest rate = 5%
At initial recognition the entity determines that the asset is not purchased or
originated credit-impaired.

Debit Credit
Financial asset FVOCI CU1,000
Cash CU1,000
(To recognise the debt instrument measured at its FV)

FVOCI means fair value through other comprehensive income.

*
Refer to Example 13 in paragraphs IE78-IE81 of IFRS Foundation
IFRS 9 Financial Instruments
 Example 12:* Subsequent measurement of financial asset
Debt instrument measured at FVOCI 35

31 December 20X0 (the reporting date) FV decreased to CU950 as a result of

changes in market interest rates.
The entity determines that there has not been a significant increase in credit risk
since initial recognition and that expected credit losses should be measured at an
amount equal to 12-month expected credit losses (ECL), which amounts to CU30.
(Note: refer to Part III of the IFRS 9 CPD for how to calculate 12-month ECL).

Debit Credit
Impairment loss (P&L) CU30
Other comprehensive income (a) CU20
Financial asset - FVOCI CU50
(To recognise 12-month expected credit losses and other FV changes on
the debt instrument)
(a) cumulative loss in OCI at the reporting date = CU20 which consists of the total FV change of CU50
(ie CU1,000 CU950) offset by the change in the accumulated impairment amount representing 12
month expected credit losses that was recognised (CU30).
*
Refer to Example 13 in paragraphs IE78-IE81 of IFRS Foundation
IFRS 9 Financial Instruments
 Example 12:* Subsequent measurement of financial asset
Debt instrument measured at FVOCI 36

1 January 20X1: the entity sells the debt instrument for CU950, which is its FV
at that date.
Debit Credit
Cash CU950
Financial assetFVOCI CU950
Loss (profit or loss) CU20
Other comprehensive income CU20
To derecognise the FVOCI asset and recycle amounts accumulated in
OCI to P&L)

*
Refer to Example 13 in paragraphs IE78-IE81 of IFRS Foundation
IFRS 9 Financial Instruments
Subsequent measurement of financial asset
Fair value through OCI (investments in equity instruments) 37

Statement Other
Profit or
of financial Comprehensive
loss
position Income
Changes in fair value
and foreign exchange
component

Fair Value Dividends

(amounts accumulated
never reclassified to P&L
may be transferred
within equity)

IFRS Foundation
Subsequent measurement of financial asset
Fair Value through Profit or Loss 38

Statement of Other
financial Profit or loss Comprehensiv
position e Income

Changes in
Fair value

Fair value Nil

Gain or los
on
derecognition

IFRS Foundation
Dividends 39

Dividends are recognised in

profit or loss only when:
the entitys right to receive payment
of the dividend is established;
it is probable that the economic
benefits associated with the dividend
will flow to the entity; and
the amount of the dividend can be
measured reliably.
IFRS Foundation
 Investments in equity instruments
Measurement 40

In limited circumstances cost

may be an appropriate
estimate of FV, eg insufficient Cost is never the
All investments in equity more recent information is best estimate of
instruments must be measured available to measure FV, a FV for investments
at FV. wide range of possible FV in quoted equity
measurements and cost instruments
represents the best estimate of
FV within that range.

IFRS Foundation
Cost not representative of fair value
Indicators 41

Significant change in investees performance compared with budgets, plans or milestones.

Changes in expectation, eg investees technical product milestones will be achieved.

Significant change in the market for the investees equity or its products or potential products.

Significant change in the global economy or the economic environment in which the investee
operates.

Significant change in the performance of comparable entities, or in the valuations implied by

the overall market.

Internal matters of the investee, eg commercial disputes, litigation, changes in management or

strategy.

Evidence from external transactions in the investees equity, either by the investee (such as a fresh
issue of equity), or by transfers of equity instruments between third parties.
IFRS Foundation
 Measurement
Financial liabilities 42

MEASUREMENT AT INITIAL RECOGNITION

Fair value*the price that would be paid to transfer a liability in an orderly transaction between
market participants at the measurement date.

SUBSEQUENT MEASUREMENT
It depends:
- amortised cost using the effective interest method;
- fair value through profit or loss: derivatives, liabilities accounted for under the fair value option
and other financial liabilities

*Fair value is defined as follows: The price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement
date. (IFRS 13, Appendix A) IFRS Foundation
 Financial liabilities own credit
Designated as at fair value through profit or loss (fair value option, ie
FVO) 43 43

Financial statements IFRS 9

Balance sheet P&L
Full FV all FV
Financial liabilities FVO Gain and loss
except own credit

OCI

FV
Gain and loss
due to own credit*
* Not recycled to P&L
Own credit = FV changes in the liability arising from changes in the risk that the
issuer will fail to perform on that particular liability
Otherwise, P&L gain when own credit deteriorates, loss when it improves
Required by IFRS 9 for liabilities under the FVO
IFRS 9 allows the own credit requirements to be early applied before
the rest of IFRS 9
IFRS Foundation
 Amortised cost 44

Amount at Cumulative Gross Loss

Principal amortisation using Amortis
initial - repayments
+/- = carrying - allowance = ed cost
recognition effective interest amount for financial
method of any assets
difference
between initial
amount and
maturity amount
Effective interest method is the method that is used in the calculation of the
amortised cost of a financial asset or a financial liability and in the allocation
and recognition of the interest revenue or interest expense in profit or loss over
the relevant period.
Effective interest rate is the rate that exactly discounts estimated future cash
payments or receipts through the expected life of the financial asset or financial
liability to the gross carrying amount of a financial asset or to the amortised
cost of a financial liability.
IFRS Foundation
 Reclassification of financial assets
Measurement 45

Reclassification to
Fair value through Fair value through OCI Amortised cost
profit or loss

R Fair value Continue to measure at FV FV at reclassification date = new

through gross carrying amount
ec profit or loss
The effective interest rate is determined on the basis of the fair value
la of the asset at the reclassification date
ss Fair value Continue to Reclassify the financial asset at its
ifi through OCI measure at FV FV at the reclassification date
Cumulative gain or Cumulative gain or loss in OCI
ca loss in OCI removed from equity and adjusted
tio reclassified to against FV at reclassification date
n profit or loss at Effective interest rate and expected
reclassification credit losses not adjusted
fro date
m Amortised FV measured at reclassification date
cost
Difference between Difference between previous
previous amortised amortised cost and FV
cost and FV recognised in OCI
recognised in profit Effective interest rate and
or loss expected credit losses
not adjusted

IFRS Foundation
 Example 13:* reclassification of financial assets 46

Entity A purchases a portfolio of bonds: FV (gross carrying amount)

= CU500,000.
Business model for managing the bonds changes.
FV of the portfolio of bonds at the reclassification date =
CU490,000.
If the portfolio was measured at amortised cost or at FVOCI
immediately prior to reclassification:
Loss allowance recognised at the date of reclassification would be CU6,000
(reflecting a significant increase in credit risk since initial recognition and
thus the measurement of lifetime expected credit losses).
12-month expected credit losses at reclassification date = CU4,000.
For simplicity, journal entries for the recognition of interest revenue
are not provided.
*
Refer to Example 15 in paragraph IE104 of IFRS 9 IFRS Foundation
Financial Instruments
 Example 13:* reclassification of financial
assets (continued) 47

Scenario 1: Reclassification out of FVTPL and into FVOCI

measurement category

Debit Credit
Bonds (FVOCI assets) CU490,000
Bonds (FVPL assets) CU490,000
Impairment loss (profit or loss) CU4,000
Other comprehensive income CU4,000
(To recognise the reclassification of bonds from FVTPL to FVOCI including
commencing accounting for impairment. The OCI amount reflects the loss
allowance at the date of reclassification (an accumulated impairment amount
relevant for disclosure purposes) of CU4,000.)

*
Refer to Example 15 in paragraph IE104 of IFRS 9
IFRS Foundation
Financial Instruments
 Example 13:* reclassification of financial
assets (continued) 48

Scenario 2: Reclassification out of FVTPL and into amortised

cost measurement category

Debit Credit
Bonds (gross carrying amount of the CU490,000
amortised cost assets)
Bonds (FVTPL assets) CU490,000
Impairment loss (P&L) CU4,000
Loss allowance CU4,000
(To recognise reclassification of bonds from FVTPL: to amortised
cost including commencing accounting for impairment.)
*
Refer to Example 15 in paragraph IE104 of IFRS 9
Financial Instruments
IFRS Foundation
 Example 13:* reclassification of financial
assets (continued) 49

Scenario 3: Reclassification out of FVOCI measurement

category and into FVTPL measurement category
Debit Credit
Bonds (FVPL assets) CU490,000
Bonds (FVOCI assets) CU490,000
Reclassification loss (profit or loss) CU4,000
Other comprehensive income(a) CU4,000
(To recognise the reclassification of bonds from FVOCI to FVTPL.)
(a)
The cumulative loss in OCI at the reclassification date was CU4,000. That amount
consists of the total FV change of CU10,000 (ie CU500,000 490,000) offset by the loss
allowance that was recognised (CU6,000) while the assets were measured at FVOCI
*
Refer to Example 15 in paragraph IE104 of IFRS 9
Financial Instruments IFRS Foundation
 Example 13:* reclassification of financial
assets (continued) 50
Scenario 4: Reclassification out of FVOCI and into amortised
cost measurement category
Debit Credit
Bonds (gross carrying value of the amortised cost assets) CU490,000
Bonds (FVOCI assets) CU490,000
Bonds (gross carrying value of the amortised cost assets) CU10,000
Loss allowance CU6,000

Other comprehensive income (a) CU4,000

(To recognise the reclassification from FVOCI to amortised cost including the recognition of the loss
allowance deducted to determine the amortised cost amount. The measurement of expected credit
losses is however unchanged.)

(a)
The cumulative loss OCI at the reclassification date was CU4,000. That amount consists of the
total FV change of CU10,000 (ie CU500,000 490,000) offset by the accumulated impairment
amount recognised (CU6,000) while the assets were measured at FVTOCI
*
Refer to Example 15 in paragraph IE104 of IFRS 9
Financial Instruments IFRS Foundation
 Example 13:* reclassification of financial
assets (continued) 51

Scenario 5: Reclassification out of amortised cost and into

FVTPL measurement category

Debit Credit
Bonds (FVTPL assets) CU490,000
Bonds (gross carrying amount of the CU500,000
amortised cost assets)
Loss allowance CU6,000
Reclassification loss (profit or loss) CU4,000
(To recognise the reclassification of bonds from amortised cost to
FVTPL and to derecognise the loss allowance.)

*
Refer to Example 15 in paragraph IE104 of IFRS 9 IFRS Foundation
Financial Instruments
 Example 13:* reclassification of financial
assets (continued) 52

Scenario 6: Reclassification out of amortised cost and into

FVOCI measurement category
Debit Credit
Bonds (FVOCI assets) CU490,000
Bonds (gross carrying amount of amortised cost CU500,000
assets)
Loss allowance CU6,000
Other comprehensive income(a) CU4,000

(To recognise the reclassification from amortised cost to FVOCI. The measurement of
expected credit losses is however unchanged.)

(a)
For simplicity, the amount related to impairment is not shown separately. If it had been, this journal
entry (ie DR CU4,000) would be split into the following two entries: DR OCI CU10,000 (FV changes)
and CR OCI CU6,000 (accumulated impairment amount).
*
Refer to Example 15 in paragraph IE104 of IFRS 9
Financial Instruments
IFRS Foundation
 Estimates and other
judgements

IFRS Foundation
Main judgements and estimates in applying
IFRS 9 54

IFRS Foundation
 Effective date and transition 55

Annual periods beginning on or after 1 January 2018

(early application of completed (whole) version permitted)
Retrospective application with certain transition reliefs
Date of initial application = date when an entity first applies IFRS 9
Own credit requirements can be early applied in isolation, until the mandatory effective
date.
Specific transition requirements for the following items:
Classification: business model assessment, solely payment of principal and interest
assessment, investments in equity instruments, fair value option designations, own
credit risk on liabilities designated as at FVTPL
Measurement: hybrid contracts, effective interest method, unquoted equity
investments
Previous versions of IFRS 9 phased out:
An entity may elect to apply earlier versions of IFRS 9 if , and only if, the entitys
relevant date of initial application is before 1 February 2015
Impracticable exemption for interim periods prior to the date of initial application

IFRS Foundation