IFRS 9 Application for Revenue Based Financing

[Dini04]

My company is considering obtaining revenue based financing to raise capital because of no dilution of equity and flexible repayment. The investor will receive percentage of revenue sharing payments on semi-annually basis. The revenue sharing will continue until year-3, or until the initial investment amounts are fully returned (whichever the latest). My question is should I classify this financial instrument as FVTPL? because i don't think the contractual cash flows meet the SPPI criteria. If yes, (1) how to determine the fair value? (2) how should I account for the revenue sharing payments to investor? is it considered as repayment of principal? or everything is considered as finance cost in the company's P&L? Thank you.

[JRSB]

You're the borrower rather than the lender right? So we're talking about a financial liability?

[DJP]

As JRSB points out, it appears that your company is the borrower, not the investor. As such, SPPI is not relevant (SPPI only applies to the classification of financial assets).

This seems to be a contingent settlement provision that meets the definition of a financial liability. Have a look at IAS 32 p25. If so, you should account for it in accordance with IFRS 9 (see paragraph B5.4.6)

[JakobLavrod]

As an interesting note, this subject is discussed by EFRAG in this paper:
https://www.efrag.org/News/Project-613/ ... erspective