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

Mahanadi Steels Ltd adopted Ind AS 109 from the beginning of its current reporting period. Until the previous year it held a portfolio of government bonds with an active trading intent. At the date of initial application, management's business model for this portfolio is to hold the bonds to collect contractual cash flows, and the cash flows are solely payments of principal and interest. How should the classification be determined on transition?

Classification is determined from the facts and circumstances at the date of initial application, and the result is applied retrospectively regardless of the entity's business model in earlier periods. Because the bonds are now held to collect cash flows with SPPI cash flows, the earlier trading intent does not decide the classification.

1. AOn the basis of the business model that existed in prior reporting periods, so the bonds stay at FVTPL
2. BOn the basis of facts and circumstances at the date of initial application, and the resulting classification is applied retrospectively irrespective of the prior business modelCorrect
3. COn the basis of the business model at the original acquisition date of each bond, applied prospectively
4. DOn the basis of the average business model over the last three reporting periods