CA Final · Financial Reporting · Classification and Measurement of Financial Assets and Financial Liabilities
On 1 April, Narmada Finance Ltd, on first applying Ind AS 109, holds a loan portfolio. In earlier years its business model was to sell loans, but at 1 April its facts and circumstances show it now holds them to collect contractual cash flows, and cash flows are solely payments of principal and interest. Which statement reflects Ind AS 109 transition requirements (para 7.2.3)?
Narmada assesses the business model using facts and circumstances at the date of initial application and applies the resulting classification retrospectively, regardless of its business model in earlier periods. Since it now holds loans to collect SPPI cash flows, prior selling intent does not drive classification.
- AAssess the business model on facts and circumstances at the date of initial application and apply the resulting classification retrospectively, irrespective of prior-period business modelCorrect
- BClassify using the business model that existed in the earliest prior period presented
- CClassify prospectively only for loans originated after the date of initial application
- DClassify at FVTPL because the prior business model was selling
Explanation
Para 7.2.3 requires assessing the business model condition on the facts and circumstances at the date of initial application, with the resulting classification applied retrospectively irrespective of the prior business model. The earlier-period and prospective options contradict this. The hold-to-collect model at that date with SPPI cash flows points to amortised cost.
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