Financial Assets


Recognition

A financial asset is recognized in the statements of financial position when it becomes a party to the contractual provisions of a financial instrument. In the case of a regular way purchase or sale of financial assets, recognition is done using settlement date accounting. 

 

Financial assets are recognized initially at fair value of the consideration given. The initial measurement of financial assets, except for those designated as at FVPL, includes transaction costs. 



Classification 

Financial assets are classified at initial recognition, in the following categories: financial assets at amortized

cost, financial assets at FVOCI, and financial assets at FVPL. The classification depends on the business model

of the Company for managing the financial assets and the contractual cash flow characteristics of the financial

assets. 



Derecognition of Financial Assets 

 A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is primarily derecognized when: 

 

  • 1. The right to receive cash flows from the asset has expired; or 

 

  • 2. The entity has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; and either: (a) has transferred substantially all the risks and rewards of the asset; or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. 

 

3. When the entity has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the company continues to recognize the transferred asset to the extent of the company’s continuing involvement. In that case, the company also recognizes the associated liability. The transferred asset and the associated liability are measured on the basis that reflects the rights and obligations that the company has retained. 

 

3. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the company is required to repay. 



Impairment 

The entity recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the company expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms. 

 


 

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