PFRS 9 Financial Instruments
Learning Objectives
• State the classifications of financial assets and their initial
and subsequent measurements.
• State the classifications of financial liabilities and their initial
and subsequent measurements.
Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 2
Financial assets
A financial asset is any asset that is:
a. Cash;
b. Equity instrument of another entity;
c. Contractual right to receive cash or another financial
asset or to exchange financial assets or financial
liabilities with another entity under conditions that are
potentially favorable to the entity
Conceptual Framework & Acctg. Standa 3
rds (by: Zeus Vernon B. Millan)
Financial liabilities
A financial liability is any liability that is:
a. a contractual obligation to deliver cash or another
financial asset to another entity; or
b. a contractual obligation to exchange financial assets
or financial liabilities with another entity under
conditions that are potentially unfavorable to the
entity.
Conceptual Framework & Acctg. Standa 4
rds (by: Zeus Vernon B. Millan)
Initial recognition and Classification
• Financial assets are recognized only when the entity
becomes a party to the contractual provisions of the
instrument.
Conceptual Framework & Acctg. Standa 5
rds (by: Zeus Vernon B. Millan)
Basis of classification
1. The entity’s business model for managing the financial assets;
and
2. The contractual cash flow characteristics of the financial asset.
Conceptual Framework & Acctg. Standa 6
rds (by: Zeus Vernon B. Millan)
Conceptual Framework & Acctg. Standa 7
rds (by: Zeus Vernon B. Millan)
Equity vs. Debt instruments
• Only debt instruments can be classified under the
Amortized Cost or FVOCI (mandatory) measurement
categories.
• Equity instruments are measured at FVPL, unless the
entity makes an irrevocable election on initial recognition
to measure them at FVOCI.
• A debt instrument that is not measured at amortized cost
or at FVOCI is measured at FVPL.
Conceptual Framework & Acctg. Standa 8
rds (by: Zeus Vernon B. Millan)
Business models
Conceptual Framework & Acctg. Standa 9
rds (by: Zeus Vernon B. Millan)
Business models
Conceptual Framework & Acctg. Standa 10
rds (by: Zeus Vernon B. Millan)
Business models
Conceptual Framework & Acctg. Standa 11
rds (by: Zeus Vernon B. Millan)
Business models
Conceptual Framework & Acctg. Standa 12
rds (by: Zeus Vernon B. Millan)
Conceptual Framework & Acctg. Standa 13
rds (by: Zeus Vernon B. Millan)
Reclassification
• After initial recognition, financial assets are reclassified only when
the entity changes its business model for managing financial
assets.
• Reclassification date is the first day of the first reporting period
following the change in business model that results in an entity
reclassifying financial assets.
Conceptual Framework & Acctg. Standa 14
rds (by: Zeus Vernon B. Millan)
Notes on reclassification
• Only debt instruments can be reclassified. Equity instruments
(e.g., investments in shares of stocks) cannot be reclassified.
• Financial assets cannot be reclassified into or out of the “designated
at FVPL” and “FVOCI - election” classifications.
• The initial measurement is fair value at reclassification date,
except for a reclassification from FVOCI to Amortized cost where the
fair value on reclassification date is adjusted for the cumulative
balance of gains and losses previously recognized in OCI.
Conceptual Framework & Acctg. Standa 15
rds (by: Zeus Vernon B. Millan)
Impairment
• The impairment requirements of PFRS 9 apply equally to debt-type
financial assets that are measured either at amortized cost or at
FVOCI.
• Impairment gains or losses on debt instruments measured at FVOCI
are recognized in profit or loss. However, the loss allowance shall
be recognized in other comprehensive income and shall not reduce
the carrying amount of the financial asset in the statement of
financial position.
Conceptual Framework & Acctg. Standa 16
rds (by: Zeus Vernon B. Millan)
Dividends
• Dividends received from equity securities measured at FVPL or
FVOCI (except share dividend) are recognized as dividend revenue.
Conceptual Framework & Acctg. Standa 17
rds (by: Zeus Vernon B. Millan)
APPLICATION OF CONCEPTS
PROBLEM 2: FOR CLASSROOM DISCUSSION
Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 18
OPEN FORUM
QUESTIONS????
REACTIONS!!!!!
Conceptual Framework & Acctg. Standa 19
rds (by: Zeus Vernon B. Millan)
END
Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 20
