ACCA FR知识点：Financial assets（金融资产）

International Financial Reporting Standard (IFRS®) 9 Financial Instruments is a complex standard, especially for users and preparers of financial statements. It is therefore no surprise that ACCA candidates also find it complex. Indeed, there is a well-known quote from a previous Chair of the International Accounting Standards Board (the Board) who said: ‘If you understand this [standard], you haven’t read it properly.

IFRS 9 is relevant to the Financial Reporting (FR) syllabus, and so this article  takes a high-level review of its application to the following:

Financial assets

Financial liabilities

Convertibles

Financial assets

There are two types of financial asset (equity and debt instruments), which can be further split into different categories.

(a) Equity investments

Equity instruments are likely to be shares that have been purchased in a company, but not enough to give the investee significant influence (associate), control (subsidiary) or joint control (joint venture).

There are two options here, depending on the intention of the entity. The default category is fair value through profit or loss (FVPL).

Equity instruments: fair value through profit or loss (FVPL)

FVPL is  the default treatment for equity investments where transaction costs such as broker fees are expensed and not capitalised within the initial cost of the asset. Subsequently, the investment is revalued to fair value at each year end, with the gain or loss being taken to the statement of profit or loss.

Alternatively, equity instruments can be classified as fair value through other comprehensive income (FVOCI). It is important to note that this designation must be made on acquisition and the equity investments cannot retrospectively be treated as FVPL. This is only an option if the equity investment is intended to be a long-term investment.

Equity instruments: fair value through other comprehensive income (FVOCI)

Using FVOCI, the alternative treatment, transaction costs can be capitalised as part of the initial cost of the investment. Similar to FVPL, the instrument would then be revalued to fair value at the year end. The big difference is where the gain or loss is recorded. In FVOCI, the gain or loss is recognised within Other Comprehensive Income and held in an investment reserve. In this way it is similar to the accounting for property, plant and equipment using the revaluation model. However unlike the treatment for a revaluation surplus, there can be a negative FVOCI reserve.

When the FVOCI instrument is sold, the reserve can be left in equity, or transferred into retained earnings.

(b) Debt instruments

These are usually bonds or loan notes, or other instruments which are likely to carry interest and a capital element of repayment. The treatment of the debt instrument depends on the intention of the entity, and there are three options for categorising debt instruments.

Debt instruments: fair value through other profit or loss (FVPL)

The default category is FVPL, but this is rare within ACCA exams and it is much more common to apply one of the two alternative treatments, being amortised cost or FVOCI.

Debt instruments: amortised cost

To apply this treatment, the instrument must pass two tests; first the business model test and secondly the contractual cash flow characteristics test.

Business model test – the entity must intend to hold the instrument in order to collect the interest payments and receive repayment on maturity.

Contractual cash flow characteristics test – the contractual terms give rise to cash flows which are solely repayments of the interest and principle amount.

In the FR exam, it will only be the first test which may (or may not) be met, so management must decide on their intention for holding the debt instrument. This treatment tends to be the most common in exam scenarios, as it allows the examiner to test the principles of amortised cost accounting.

The principles of amortised cost accounting require that interest must be recorded on the amount outstanding. This is relatively straight forward for many instruments. For example, on a $10m 5% loan, with $10m repayable at the end of a three-year term, interest would simply be recorded as $500,000 a year.

The issues arise when the balance may be repaid at a premium. For example, the terms of the $10m loan, issued on 1 January 20X1, may be that the holder receives interest of 5% a year, but then receives $11m back at the end of the three year term, on 31 December 20X3. This means that the holder is now earning interest in two different ways. Firstly, they are earning the 5% payment each year. Secondly, they are earning another $1m interest over three years in the form of receiving more money back than they invested.

IFRS 9, Financial Instruments, requires that a constant rate of interest is applied to this balance to better reflect the reality of the situation. This rate takes into account both the annual payment and the premium payable on redemption. In the FR exam, this rate will be provided in the question. The question will provide information about the effective rate of interest. Let’s say that in this example, the effective rate of interest is 8.08%. This rate is applied to the outstanding balance each year in order to calculate the interest earned on the investment, which is the amount to be recorded in investment income in the statement of profit or loss.

The easiest way to do this is often to use a table showing the movement of the asset.

The figures in the interest column would be the amounts recorded as investment income in the statement of profit or loss each year.This is increasing to reflect the fact that the amount owed is increasing as it gets closer to redemption.

The balance in the final column reflects the amount owed to the entity at each year end,and shows how the balance outstanding increases from$10m to$11m over the three year period.

The double entries for the asset in year one would be as follows:

1 January 20X1–The$10m loan is given to the third party.This reduces the entity’s cash balance,but creates a long-term receivable of$10m,meaning the entry is Dr Receivable$10m,Cr Cash$10m.

The interest then accrues over the year at the effective rate of 8.09%.This increases the amount of the receivable and is recorded in investment income,so the entry is Dr Receivable$808k,Cr Investment income$808k.

31 December 20X1–The entity receives a payment of$500,000,being 5%of the original$10m loaned.This figure will be the same each year.This reduces the value owed to the entity,so the entry is Dr Cash$500k,Cr Receivable$500k.

The result of these entries is that the entity has a closing receivable of$10.308m.This will all be held as a non-current asset,as the amount is not receivable until 31 December 20X3.【点击免费下载>>>更多ACCA学习相关资料】

This would carry on for the next two years,until the full amount is repaid at 31 December 20X3 with the entry Dr Cash$11m,Cr Receivable$11m.

The total interest to be recorded in the statement of profit or loss over the three years is$2.5m,being the$808k+$833k+$859k.This$2.5m represents all the interest earned by the entity over the three years.This consists of the$1.5m annual payments($500k a year),and the additional$1m received(the difference between loaning the$10m and receiving the$11m).

Debt instruments:fair value through other comprehensive income(FVOCI)

The final possible treatment for a debt instrument is to hold it at fair value through other comprehensive income(FVOCI).Similar to holding the instrument at amortised cost,two tests must be passed in order to hold a debt instrument in this manner.

Business model test–the entity intends to hold the instrument in order to collect the interest payments and receive repayment on maturity,but may sell the asset if the possibility of buying one with a greater return arises.

Contractual cash flow characteristics test–the contractual terms give rise to cash flows which are solely repayments of the interest and principle amount.

Again,it is only the first of these that candidates will need to consider in the FR exam,highlighting that the choice of category will depend on the intention of management.

If the entity chooses to hold the debt instrument under the FVOCI or FVPL category,they will still produce the amortised cost table as above,taking the same figure to investment income.At the year end,the asset would then be revalued to fair value,with the gain or loss being recorded in either the statement of profit or loss if classed as FVPL or in other comprehensive income if classified as FVOCI.

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【ACCA FR知识点：Financial liabilities（金融负债）】

【ACCA FR知识点：金融资产与负债的转换】