Financial Asset – 2014 Version, Effective Jan.

2018

Classification of Financial Assets

PFRS 9 requires an entity to classify financial assets on the basis of both:
(a) the entity's business model for managing the financial assets and
(b) the contractual cash flow characteristics of the financial asset.

PFRS 9 effectively classifies financial assets into three categories, specifically:

I. Financial assets at amortized cost(FA@AC) using effective interest method category by qualification

ll. Financial assets at fair value through other comprehensive income (FA@FVTOCI) category by qualification
(debt instrument) or by designation (equity instrument); and

lll. Financial assets at fair value through profit or loss (FA@FVTPL) residual category, by requirement or by
designation

I. Financial Assets at Amortized Cost Using Effective Interest Method(FA@AC)

A financial asset shall be measured at amortized cost if both of the following conditions are met:
(a) The financial asset is held within a business model whose objective is to hold assets in order to collect
contractual cash flows (held for collection).
(b) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding(SPPI).

This category of financial assets applies only to debt instruments.

ll. Financial assets at fair value through other comprehensive income (FA@FVTOCI)
Debt Instrument – A financial asset shall be measured at amortized cost if both of the following conditions are
met:
(a) The financial asset is held within a business model whose objective is achieved by both collecting
contractual cash flows and selling financial assets (held for collection and for sale).
(b) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding(SPPI).

Equity Instruments - PFRS 9 allows at initial recognition, an entity to make an irrevocable election to present in
other comprehensive income subsequent changes in the fair value of an investment in an equity instrument
within its scope that is neither held for trading nor contingent consideration recognized by an acquirer in a
business combination to which PFRS 3 applies. This election is made on an instrument-by-instrument (i.e.,
share-by-share) basis.
III Financial Asset at Fair value through Profit or Loss (FA@FVTPL)
Any financial assets that are 'not held for collection' or 'held for collection and for sale' business model are
measured at fair value through profit or loss. As such, fair value through profit or loss represents a 'residual'
category. Included in this category are financial assets that are managed on a fair value basis, those 'held for
trading' and those designated at FVTPL.

Fair Value Option(FVO) An entity may, at initial recognition, irrevocably designate a financial asset as
measured at fair value through profit or loss if so eliminates or significantly reduces a measurement or
recognition consistency (sometimes referred to as an 'accounting mismatch') that would otherwise arise from
measuring assets or liabilities or recognizing the gains and losses on them on different bases.

In other words, designating financial assets at fair value through profit or loss is allowed if doing so results in
more relevant information.

Process for Determining the Classification and Measurement of Financial Assets

(Adopted from IFRS Foundation’s IFRS 9 Project Summary)

Instrument within the scope of IFRS 9

Contractual cash flows are solely

principal and interest

Held to collect contractual cash flow Held to collect contractual cash flow
only? and sale?

Fair value option? Fair value option?

Amortised cost Fair value through profit or loss* Fair value through other
comprehensive income

*presentation option for equity investments to present fair value changes in OCI

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