ACCA Strategic Professional · Strategic Business Reporting (International) · Financial instruments
Kora Ltd holds a portfolio of loans. Its business model is to collect contractual cash flows to maturity. The loans pay principal and interest on the principal outstanding only. Under IFRS 9, how should Kora classify the loans?
The loans are classified at amortised cost. IFRS 9 requires this when assets are held within a business model to collect contractual cash flows and those cash flows are solely payments of principal and interest on the principal outstanding.
- AAmortised costCorrect
- BFair value through other comprehensive income with recycling
- CFair value through profit or loss
- DFair value through other comprehensive income without recycling
Explanation
The business model is hold to collect and the cash flows meet the solely payments of principal and interest (SPPI) test. Both conditions give amortised cost. FVOCI with recycling requires a model of collecting and selling, and FVTPL applies when the conditions fail.
Did you get it right without looking?
One question tells you little. A timed set on Financial instruments shows your real accuracy, how long you take and where you lose marks.
More Financial instruments questions
- Orbis Ltd holds a loan asset measured at amortised cost. At the reporting date, Orbis revises its estimate of future contractual cash receip…
- Group parent Alder holds a $1,000,000 bond issued by its subsidiary Birch, acquired in the market for $950,000 and classified at amortised c…
- Delta Ltd has a loan with a carrying amount of $20.0m. It exchanges it with the same lender for a new loan with substantially different term…
- On 1 January 20X1 Hale issues 1,000 convertible bonds at $1,000 each, redeemable at par after 3 years. The coupon is 4% payable annually in …
- Zeta plc issues preference shares that pay a fixed 6% annual dividend, which the board must pay each year. The shares must be redeemed by Ze…
- Delta Co's finance director asks the accountant to omit from the financial statements an interest rate swap with a year-end fair value liabi…