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CA Final · Financial Reporting · Classification and Measurement of Financial Assets and Financial Liabilities

Himalaya Bank Ltd has committed to give a customer a loan at an interest rate below the market rate. The commitment is not designated at FVTPL. Which measurement applies after initial recognition?

A below-market loan commitment not designated at FVTPL is measured at the higher of the Section 5.5 loss allowance and the amount initially recognised less, where appropriate, cumulative income recognised under Ind AS 115. This follows paragraph 4.2.1(d) and is an exception to the amortised cost default.

  1. AHigher of the Section 5.5 loss allowance and the amount initially recognised less, when appropriate, cumulative income recognised under Ind AS 115Correct
  2. BFair value through other comprehensive income
  3. CNot recognised at all until the loan is drawn
  4. DLower of the loss allowance and the initial amount

Explanation

Paragraph 4.2.1(d) covers commitments to provide a loan at a below-market interest rate. Unless designated at FVTPL, the issuer measures them at the higher of the loss allowance and the initial amount less cumulative income under Ind AS 115. FVOCI is a category for financial assets, not for such commitments.

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