IFRS 9-Effective interest method

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Phuongtruong
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IFRS 9-Effective interest method

Post by Phuongtruong »

Financial assets are classified 3 types:
1. Amortised cost (AC)
2. Fair value through other comprehensive income (FVTOCI)
3. Fair value through profit or loss (FVTPL)
So, Is the Effective interest method applied for AC only
or AC and FVTOCI
or all three ( AC, FVTOCI and FVTPL) ?
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Marek Muc
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Re: IFRS 9-Effective interest method

Post by Marek Muc »

Interest is recognised using effective interest method for all of them, see the table at the beginning of this page:

https://ifrscommunity.com/knowledge-bas ... struments/
JRSB
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Re: IFRS 9-Effective interest method

Post by JRSB »

That page says "As mentioned on the classification page, FVOCI category can be used for debt investments only."

Is that specifically referring to the "FVOCI with recycling" category rather than FVOCI as a whole?
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Marek Muc
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Re: IFRS 9-Effective interest method

Post by Marek Muc »

FVOCI with recycling of course, I need to clarify that as it may not be obvious despite the title of this section, thanks for pointing this out JRSB
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Re: IFRS 9-Effective interest method

Post by JRSB »

phew, glad you said that!
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Re: IFRS 9-Effective interest method

Post by JRSB »

Marek, do you happen to know the rationale behind the FVOCI equity/debt different treatments regarding recycling, to save dipping into basis for conclusions?
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Marek Muc
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Re: IFRS 9-Effective interest method

Post by Marek Muc »

I don't know, to be honest... But I will try to dig into it some day, unless you're up for this challenge? :)

I don't expect any strong rationale though, the whole P/L vs OCI differentiation lacks solid conceptual basis
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Re: IFRS 9-Effective interest method

Post by JRSB »

Ok yes I will try and find more... You'll remember I was looking in to OCI a little, as there are gaps in my understanding of the objectives here sometimes. We'll see!
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Marek Muc
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Re: IFRS 9-Effective interest method

Post by Marek Muc »

the main objective, as you may recall, was to remove any effects of transactions with non-owners from equity and have them recognised as income or expense

but the IASB wasn't bold enough to move everything to P/L...
SuVic
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Re: IFRS 9-Effective interest method

Post by SuVic »

Marek Muc wrote: 19 Jun 2020, 19:11 Interest is recognised using effective interest method for all of them, see the table at the beginning of this page:

https://ifrscommunity.com/knowledge-bas ... struments/

Hi,
IFRIC update from March 2018 clarifies that amortised cost accounting is not applied to assets or liabilities measured at FVTPL. (as mentioned on the link https://ifrscommunity.com/knowledge-bas ... easurement)

So I use EIR to recognise daily interest income for assets classified at FVOCI and AC
I also concern about FVTPL, bond investment classified at FVTPL for example, should we need to recognize daily interest income at coupon rate?
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Marek Muc
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Re: IFRS 9-Effective interest method

Post by Marek Muc »

As I see it, interest accrued simply impacts FV of the bond, so if you want to recognise changes in FV on a daily basis, then you will see the impact of interest accrual
IFRS2020
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Re: IFRS 9-Effective interest method

Post by IFRS2020 »

Is it possible to see an example where EIR is calculated for a financial guarantee issued at arm's-length? Also, the subsequent measurement of FG contracts are measured at the higher of:

• The amount of the loss allowance, and
• The amount initially recognised less cumulative amortisation, where appropriate.


So want to check if the EIR is then used in the cumulative amortisation? Thanks.
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Marek Muc
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Re: IFRS 9-Effective interest method

Post by Marek Muc »

I don't think you use effective interest rate when measuring financial guarantees, where do you see such reference?
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Re: IFRS 9-Effective interest method

Post by IFRS2020 »

The subsequent measurement of FG contracts are measured at the higher of:

• The amount of the loss allowance, and
• The amount initially recognised less cumulative amortisation, where appropriate.

Would the EIR not be used in the cumulative amortisation?
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Marek Muc
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Re: IFRS 9-Effective interest method

Post by Marek Muc »

You still didn't give any reference :)

As I see it, IFRS 9 references to IFRS 15:

https://ifrscommunity.com/knowledge-bas ... -contracts

Do you have any spwcific example to discuss?
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exIFRS
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Re: IFRS 9-Effective interest method

Post by exIFRS »

@IFRS2020 this example might help you I think:

https://www.bdo.com.au/en-au/accounting ... der-ifrs-9
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