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

Ind AS 109 states the basis on which an entity classifies financial assets as measured at amortised cost, FVOCI or FVTPL, unless para 4.1.5 applies. Mehta Securities Ltd is reviewing its policy. Which pair of factors determines the classification?

Classification rests on two factors together: the entity's business model for managing the financial assets, and the contractual cash flow characteristics of the financial asset. Credit rating, legal form, maturity, tax position or intention for individual assets are not the stated criteria, unless para 4.1.5 applies.

  1. AThe entity's business model for managing the assets and the contractual cash flow characteristics of the assetCorrect
  2. BThe asset's credit rating and the entity's tax position
  3. CThe legal form of the asset and its maturity period
  4. DThe management's intention for each individual asset and the market price

Explanation

Para 4.1.1 requires classification on the basis of both the entity's business model for managing the financial assets and the contractual cash flow characteristics of the asset. The other pairs are not the criteria stated.

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