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

Meghna Pharma Ltd adopts Ind AS 109 for the first time. At the date of initial application, it assesses whether a debt instrument meets the business model condition for amortised cost under paragraph 4.1.2(a). In earlier years the entity actively traded such instruments, but on the date of initial application its facts and circumstances show a hold-to-collect model. How should the classification be determined?

The classification is based on the facts and circumstances existing at the date of initial application and is applied retrospectively, regardless of the business model in earlier periods. Meghna's earlier trading activity is therefore irrelevant, and the current hold-to-collect model governs the assessment of the amortised cost condition.

1. ABased on the facts and circumstances existing at the date of initial application, applied retrospectively irrespective of the prior-period business modelCorrect
2. BBased on the prior-period trading business model, applied prospectively only
3. CBased on the average business model over the previous three years
4. DLeft to management's free choice instrument by instrument, irrespective of the business model