Fair Value of Financial Instrument

All topics related to IFRS Standards.
Post Reply
Feryal24
Posts: 25
Joined: 13 May 2022, 17:29

Fair Value of Financial Instrument

Post by Feryal24 »

All,

I have a question and need reconfirmation. If there is a long-term loan valued at amortized cost would that be considered a level 3 in the fair value hierarchy in the FS?

Thank you
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: Fair Value of Financial Instrument

Post by Leo »

JRSB
Trusted Expert
Posts: 1309
Joined: 01 Mar 2020, 01:10
Location: UK

Re: Fair Value of Financial Instrument

Post by JRSB »

If it's amortised cost then it's not held at fair value, unless I misunderstood?
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: Fair Value of Financial Instrument

Post by Leo »

True, but you still have to disclose it from IFRS 13 point of view.
Feryal24
Posts: 25
Joined: 13 May 2022, 17:29

Re: Fair Value of Financial Instrument

Post by Feryal24 »

Thanks but I thought level 2 are for instruments with a quoted price. However, this is a loan with fixed payments and is non-interest bearing....
JRSB
Trusted Expert
Posts: 1309
Joined: 01 Mar 2020, 01:10
Location: UK

Re: Fair Value of Financial Instrument

Post by JRSB »

Leo, IFRS 13 is for assets carried at fair value. Where does it need any disclosure about a SPPI loan asset which is carried at amortised cost?
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: Fair Value of Financial Instrument

Post by Leo »

Please have a read on the link I attached.
Attachments
2022-08-03_18h41_21.png
Feryal24
Posts: 25
Joined: 13 May 2022, 17:29

Re: Fair Value of Financial Instrument

Post by Feryal24 »

Thank you very much Leo.
JRSB
Trusted Expert
Posts: 1309
Joined: 01 Mar 2020, 01:10
Location: UK

Re: Fair Value of Financial Instrument

Post by JRSB »

Even in those paras of IFRS 13 I can't see the requirement except when there was a non-recurring fair value determination like in a combination. Happy to be corrected that this is required for a standard loan which is carried at A.c.
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: Fair Value of Financial Instrument

Post by Leo »

If you have a few minutes, you can compare this note to 21.4 for the borrowings. When you add all the floating rate loans al together, you'll see that the numbers are the same than in this note.

When you add all the fixed rate loan al together, you'll see that there is a slight difference with the numbers in this note.

From my understanding, floating rates, because it's valued at Euribor or Libor which varies in function of the market, the value is near it's fair value.

For the fixed rates loans, they are initially valued at fair value, then subsequently accounted by using the amortised cost method. For the purpose of this exercise, groups are asked to re-assess those loans with market interest rate.
User avatar
Marek Muc
Site Admin
Posts: 3226
Joined: 15 Oct 2018, 17:21
Contact:

Re: Fair Value of Financial Instrument

Post by Marek Muc »

It's true that fair value should be disclosed also for assets/liabilities carried at amortised cost. This is a requirement set out in IFRS 7.25. It's even required in interim financial statements!

For floating rate instruments issuers often say that 'the carrying amount is a reasonable approximation of fair value' as per IFRS 7.29(a)
Post Reply