Financial Reporting · Financial Instruments: Disclosures

Ind AS 107: Significance of Financial Instruments – Balance Sheet and P&L Disclosures

Updated 5 October 2026

Ind AS 107 requires an entity to disclose the carrying amounts of each category of financial asset and liability, special items such as FVTPL designations, reclassifications, transfers, collateral, compound instruments, defaults and hedge results, and the related income, expense, gains and losses. Solve questions by naming the category, then quoting the matching disclosure.

Understand Significance of Financial Instruments: Balance Sheet and P&L Disclosures

Ind AS 107 asks one question: can a reader see how financial instruments affect your financial position and performance? Ind AS 109 and Ind AS 32 tell you how to recognise and measure. Ind AS 107 tells you what to show and explain.

Start with the categories. You must show, either on the face of the balance sheet or in the notes, the carrying amount of each of these: financial assets at FVTPL (separately showing mandatorily measured and designated), financial assets at amortised cost, financial assets at FVOCI (debt instruments and designated equity instruments shown separately), and financial liabilities at FVTPL (held for trading and designated separately) and at amortised cost. Group instruments into classes that suit their nature, and reconcile classes to the balance sheet line items.

Then come the special disclosures. Keep the asset designation rule (financial assets, including loans or receivables) separate from the liability rule.

Financial assets (or groups) designated at FVTPL, including loans or receivables (para 9): disclose the maximum exposure to credit risk, the amount by which credit derivatives or similar instruments mitigate that exposure, the change in fair value due to credit risk in the period and cumulatively, and the change in value of any related credit derivative.
Liabilities designated at FVTPL (para 10): where you present the own-credit effect in OCI, disclose the change in fair value attributable to your own credit risk, the difference between the carrying amount and the amount contractually payable at maturity, any transfer of the cumulative gain or loss within equity during the period with the reason, and the amount realised at derecognition if the liability was derecognised in the period.

If you designate equity instruments at FVOCI, you disclose which ones and why, their fair values, dividends recognised, and any transfers of cumulative gain or loss within equity on derecognition. If you reclassify a financial asset because of a change in business model, you disclose the date of reclassification, a detailed explanation of the change in business model, a qualitative description of its effect on the financial statements, and the amount reclassified into and out of each category. Where the reclassification is out of FVTPL into amortised cost or FVOCI, you also disclose the fair value at the end of the reporting period and the fair value gain or loss that would have been recognised in profit or loss had the asset not been reclassified. Ind AS 107 deals with reclassification disclosures in paras 12B–12D, so quote what those paragraphs ask for.

Other items cover risk and security. For transferred assets that are not derecognised in full, show the nature of the assets, the risks and rewards kept, and the carrying amounts of the assets and associated liabilities. For collateral, disclose the carrying amount of assets pledged as security for liabilities or contingent liabilities, and the terms of that pledge. If you hold collateral you may sell or repledge, disclose its fair value and your obligation to return it. For compound instruments: if you have issued an instrument containing both a liability and an equity component, and it has multiple embedded derivatives whose values are interdependent, disclose the existence of those features (para 17).

For defaults and breaches of loans payable recognised at the reporting date, treat the two cases separately.

Para 18, defaults of principal, interest, sinking fund or redemption terms during the period: disclose the details of the default, the carrying amount of the loans in default at the reporting date, and whether the default was remedied or the terms renegotiated before the financial statements were authorised for issue.
Para 19, breaches of loan agreement terms other than those in para 18 during the period (for example a covenant): give the disclosures that para 18 requires, if the breach was not remedied, or the terms renegotiated, on or before the reporting date. No disclosure is needed if the breach was remedied, or the terms renegotiated, on or before the reporting date.

Separately, Ind AS 1 decides the classification: a loan with a breach on or before the reporting date that makes it repayable on demand is current unless the lender agreed, before the reporting date, to give a grace period of at least 12 months after the reporting date.

In the statement of profit and loss (or notes) you disclose net gains or losses by category, total interest income and expense for items not at FVTPL, fee income and expense from financial assets and liabilities not at FVTPL and from trust activities, and any impairment losses by class. Hedge accounting disclosures (risk management strategy, amounts, timing and uncertainty of hedged cash flows, and effects on the balance sheet, profit or loss and OCI) follow in a separate hedge accounting disclosure section. Think of each disclosure as a reader's question: what do you hold, what have you changed, what is pledged, what has gone wrong, and what did it earn or cost?

Key rules to remember

Balance sheet categories to disclose: FVTPL (mandatory + designated) | Amortised cost | FVOCI (debt + designated equity) | Liabilities at FVTPL (held for trading + designated) | Liabilities at amortised cost; Show carrying amounts on the face or in notes. Reconcile each class to balance sheet line items.
Loans or receivables designated at FVTPL (para 9): Disclose: maximum credit risk exposure + mitigation by credit derivatives + change in fair value due to credit risk (period and cumulative) + change in value of related credit derivative; This is the asset-side rule. It applies to loans or receivables designated at FVTPL, and to the equivalent financial asset designations at FVTPL. Para 10 is the separate rule for liabilities designated at FVTPL.
Liabilities designated at FVTPL (para 10): Disclose: change in fair value from own-credit risk + difference between carrying amount and contractual amount payable at maturity + transfers of cumulative gain or loss within equity (with reason) + amount realised on derecognition; Applies where the own-credit effect is presented in OCI. The credit risk here is your own credit risk, not a counterparty's.
Reclassification disclosure: Date of reclassification + detailed explanation of business model change + qualitative description of effect + amount reclassified into and out of each category. From FVTPL into amortised cost or FVOCI, add: fair value at the end of the reporting period + fair value gain or loss that would have been recognised in profit or loss had the asset not been reclassified; Applies when you change the business model for managing financial assets. The fair value items arise only on reclassification out of FVTPL into amortised cost or FVOCI. See Ind AS 107 paras 12B–12D for the full set of items.
Transfers not fully derecognised: Nature of assets + risks and rewards retained + carrying amount of assets and associated liabilities; Applies to transferred assets that are not derecognised in their entirety.
Collateral: Pledged: carrying amount + terms. Held: fair value + right to sell or repledge + obligation to return; Both given and received collateral need disclosure.
Compound instruments (para 17): Disclose the existence of multiple embedded derivatives whose values are interdependent; Applies where you have issued an instrument with both a liability and an equity component and it has multiple embedded derivatives whose values are interdependent.
Statement of profit and loss items: Net gains or losses by category + interest income and expense (non-FVTPL) + fee income and expense + impairment losses by class; May be on the face of the statement or in the notes.

How to solve Significance of Financial Instruments: Balance Sheet and P&L Disclosures questions

Use this sequence for any disclosure question, whether theory or a short case scenario.

1Identify the instrument in the case and its Ind AS 109 classification: amortised cost, FVOCI or FVTPL.
2Identify the event or fact that triggers disclosure: designation, reclassification, transfer, pledge, default, compound feature or hedge.
3State the matching disclosure requirement in plain words, one item per bullet.
4List the amounts and details the case gives you, and place them under the right heading (balance sheet or profit and loss).
5Check if the case needs a split: for example mandatory FVTPL versus designated FVTPL, or debt versus designated equity at FVOCI.
6Note any statement required in P&L: gains and losses by category, interest, fees and impairment.
7Conclude with a short line linking disclosure to the user's need: financial position and performance.

Quickest way: Trigger-and-disclose table in your head

When to use it: Use when time is short and the question lists several events, such as a pledge, a default and a reclassification, in one scenario.

Underline each event in the case.
Write one-line labels: Category, Designation, Reclassification, Transfer, Collateral, Compound, Default, Hedge.
Beside each label, write the key data points to disclose in three or four words.
Add a final line for P&L: net gains and losses by category, interest, fees, impairment.
Write the answer in the same order as the labels.

Common mistakes in Significance of Financial Instruments: Balance Sheet and P&L Disclosures

Showing only one combined line for FVTPL financial assets.
Students forget that mandatory and designated FVTPL are shown separately.
Fix: Always split FVTPL into mandatorily measured and designated, and split FVOCI into debt and designated equity.
Disclosing a reclassification without the reason or the fair value items.
Students quote only the amount and date.
Fix: Include the date, a detailed explanation of the business model change, a qualitative description of its effect, and the amount reclassified into and out of each category. For a reclassification out of FVTPL into amortised cost or FVOCI, also give the fair value at the end of the reporting period and the fair value gain or loss that would have been recognised in profit or loss had the asset not been reclassified.
Treating collateral as a liability-side item only.
Pledge is remembered, receipt of collateral is not.
Fix: Cover both: assets you pledged with their terms, and collateral you hold with fair value and the right to sell or repledge.
Applying derecognition disclosures to fully derecognised assets only.
Confusion between recognition rules and disclosure scope.
Fix: Remember that the key disclosure for transfers covers assets not derecognised in their entirety, with the associated liabilities.
Ignoring defaults remedied after the reporting date.
Students think the default no longer matters.
Fix: Disclose whether the default was remedied or terms were renegotiated before the financial statements were authorised for issue. Also check the Ind AS 1 current classification of the loan.
Mixing measurement rules with disclosure rules.
Ind AS 109 and Ind AS 107 are studied together.
Fix: Answer what to show, not how to measure, unless the question asks for both.

Worked examples

Example 1

Case: Meru Ltd holds a bond portfolio measured at FVTPL because it manages the bonds by selling them. In the year it changes its business model to collecting contractual cash flows, so it reclassifies the portfolio from FVTPL to amortised cost. It also pledged trade receivables with a carrying amount of ₹8,00,000 against a bank loan. State the Ind AS 107 disclosures.

Show the solution

Identify triggers: reclassification of financial assets and assets pledged as collateral.
Reclassification: disclose the date of reclassification.
Reclassification: give a detailed explanation of the change in business model and a qualitative description of its effect on the financial statements.
Reclassification: disclose the amount reclassified into and out of each category.
Reclassification: because the portfolio moved out of FVTPL into amortised cost, also disclose its fair value at the end of the reporting period and the fair value gain or loss that would have been recognised in profit or loss had it not been reclassified.
Collateral: disclose the carrying amount of ₹8,00,000 of receivables pledged as security for the loan.
Collateral: disclose the terms and conditions relating to the pledge.

Answer: Meru Ltd discloses the reclassification date, a detailed explanation of the business model change with a qualitative description of its effect, and the amount reclassified into and out of each category. As the move is out of FVTPL into amortised cost, it also discloses the portfolio's fair value at the reporting date and the fair value gain or loss that would have been recognised in profit or loss had it not been reclassified. It also discloses the pledged receivables at ₹8,00,000 with the terms of the pledge.

Exam tips

Write disclosure answers as short bullet points, one requirement per line; examiners award marks per point.
Always tie each disclosure to a trigger from the case, such as pledge, reclassification, default or designation.
Split categories: FVTPL mandatory versus designated, and FVOCI debt versus designated equity.
For MCQs, check whether the item is a balance sheet disclosure or a profit and loss disclosure before choosing.
If hedge accounting appears in the case, name the hedge type and cover risk strategy, amounts and effect on profit or loss and OCI.

Practice questions from Financial Instruments: Disclosures

Significance of Financial Instruments: Balance Sheet and P&L Disclosures: frequently asked questions

Must categories be shown on the face of the balance sheet?

Carrying amounts of each category may be shown either on the face of the balance sheet or in the notes. Many companies use the notes and reconcile them to the balance sheet lines.

What must I disclose when I reclassify financial assets?

Disclose the date of reclassification, a detailed explanation of the business model change, a qualitative description of its effect on the financial statements, and the amount reclassified into and out of each category. For a reclassification out of FVTPL into amortised cost or FVOCI, also disclose the fair value at the end of the reporting period and the fair value gain or loss that would have been recognised in profit or loss had the asset not been reclassified. These items sit in paras 12B–12D. Give this for each reclassification.

Do collateral disclosures apply to collateral I receive?

Yes. If you hold collateral that you are permitted to sell or repledge, disclose its fair value, whether you sold or repledged it, and your obligation to return it. Pledged assets need carrying amount and terms.

Which profit and loss items does Ind AS 107 require?

Net gains or losses by category, total interest income and expense for items not at FVTPL, fee income and expense, and impairment losses by class. These can be on the face of the statement or in the notes.