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Good morning. Allow me to disagree with a point made by JakobLavrod. A consent fee is not a transaction cost and should not be included in the EIR calculation. Also, the EIR should never be changed, except in a few scenarios involving hedge accounting. If the bonds are recognised at FVTPL then EIR d...

Hi christianm,

1) P&L

2) Cr financial asset (bond)

Loan commitments are derivatives in theory, but they are explicitely scoped out of IFRS 9 (see paragraph 2.1 (g)). There are only a few cases where you would account for them at FVTPL (see paragraph 2.3). As mentioned above, the issuer needs to record ECL impairment.

It is a benefit that the sub is getting for free. Most of the times companies recognise these intra-group freebies as capital contributions. But this is an accounting policy choice. You can well take it straight to P&L (which is easier to account for). Please also note that that once regonised, ...

Or as a capital contribution. There is an accounting policy choice here.

Not so sure about that last point. There may be no obligation to deliver cash, but there is an obligation to deliver another financial asset. In any case, I don't think this is relevant for the matter in question.

I don't think you can designate this instrument at FVOCI. Even though it has characteristics of equity, it is not equity (it does not represent yet a residual interest in the net assets of an entity). Plus, it also has a liabiity component -- the coupons/dividends. The entire instrument should be ca...

well, that is not an IFRS classification. you don't have to differentiate equity investments from the rest on your balance sheet. It is simply an investment at FVPL. You can then (and perhaps should) provide more information in the notes.

yes, that's right (plus any fair value change on the non-equity component as well)

if you conclude that that there is an equity component in this investment, then the whole investment needs to be carried at FVTPL. There is no point in determining an EIR (there is though for the issuer).

sorry. are you looking at this from the issuer's perspective or the investor's perspective?

yes

No worries. The entire instrument should be carried at fair value on the balance sheet and its fair value changes should be recorded on the same line item in P&L (including the coupons/dividends accruals), i.e. I don't think it would be appropriate to record coupons/dividends accruals separate f...

Sorry, I first understood that you were being funded via convertible pref shares. In any case, it does matter to know what kind of instrument you're investing in. It looks like that you are getting a fixed number of shares for a fixed price and, therefore, there is an equity component in here. Hence...

so the quantity of shares is variable?

Hello,

When you say "convert into ordinary shares at x price", what do you mean? Is the price and quantity of the shares fixed? Or is the quantity of shares variable depending on the share price upon conversion?

Yes, you are actually right. It does say that. Apologies. But then the logic should be the same as when you are assessing costs at acquisition of a financial asset or issuance of a financial liability. Not all costs can be capitalised. For example, internal admin costs cannot be capitalised.

I don't think so. Transaction costs are defined as incremental costs attributable to the acquisition, issue or disposal of a financial asset or financial liability. There is no mention to modification costs.

You mean the costs incurred with the modification?

Yes, you are right, IFRS 9 does require transaction costs to be factored into the EIR. However, it is not very practical to apply EIR to a variable interest rate loan because at each interest reset date your EIR will change and you will have to recalculate it. (NB: you have to recalculate the EIR at...

Is this a financial guarantee or a performance guarantee?

The difference is most likely explained by the different day-count convention when you accrue interest. It is must easier to calculate an EIR by using the goal-seek function. In any case, since this is a variable interest rate loan, it is much easier to amortise the transaction costs on a straight l...

I get that, but that's not the point. According to the fact pattern you're presenting, the guarantor receives a premium only on the undrawn part of the facility. If that is indeed the case, the guarantor will receive less premium when the facility is drawn. That doesn't make much sense given that in...

This arrangements doesn't seem to make much sense from a commercial stand point. While the facility is undrawn, there is no debt instrument. However, it seems that the guarantor will receive less premium once the facility is drawn and the debt crystalises. What sense does this make? Are you sure the...

You are looking at paragraph 73 as if this is an exception created only for rollovers, but that is not the case. Paragraph 73 is simply illustrating a case of when an obligation may be due within 12 months, but you have the right -- at the end of the reporting date -- to defer settlement for at leas...

Paragraph 73 is giving you an example of when a right to defer settlement for at least twelve months exists at the reporting date. Paragraph 73 is not an exception to paragraph 69 (c); it is rather an example of how paragraph 69 (d) should be interpreted.

Hello. I don't see any inconsistency between 1.69(c) and (d). In your example, the liability seems to be current because it is due within 12 months from the reporting date. You need to take paragraph 72A into consideration to assess whether the conditions that will allow you to defer settlement of t...

As Marek pointed out, IFRS 9 does not prescribe the order in which you need to apply the business model and SPPI assessments. You basically should do it in the order you find most efficient.

Thank you! Always a pleasure to help

Definitely not a financial liability (for the reason given by Marek), but in my opinion this should be a IAS 37 provision. Which case are you referring to, JRSB?