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

Himalaya Foods Ltd holds a debt instrument whose classification is being determined under Ind AS 109 (no fair value option or para 4.1.5 exception applies). On which basis does the standard require classification as at amortised cost, FVTOCI or FVTPL?

Classification depends on both the entity's business model for managing the financial assets and the contractual cash flow characteristics of the asset. Neither test alone is sufficient to decide between amortised cost, FVTOCI and FVTPL.

  1. AOnly the contractual cash flow characteristics of the asset
  2. BOnly the entity's business model for managing the assets
  3. CBoth the entity's business model for managing the assets and the contractual cash flow characteristicsCorrect
  4. DThe legal form of the instrument and its credit rating

Explanation

Para 4.1.1 states that financial assets are classified on the basis of both the business model for managing them and their contractual cash flow characteristics. Using only one of the two tests is incomplete.

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