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ACCA Strategic Professional · Strategic Business Reporting (International) · Financial instruments

Orbis Ltd holds a loan asset measured at amortised cost. At the reporting date, Orbis revises its estimate of future contractual cash receipts upwards for reasons unrelated to credit impairment (a modification is not involved). Under IFRS 9, how is the change in estimate treated?

The gross carrying amount is recalculated as the present value of the revised estimated cash flows discounted at the original effective interest rate, and the adjustment is recognised immediately in profit or loss, not in other comprehensive income.

  1. ARecalculate the gross carrying amount as the present value of revised cash flows at the original effective interest rate, with the adjustment in profit or lossCorrect
  2. BDiscount revised cash flows at the current market rate and recognise the difference in other comprehensive income
  3. CProspectively apply a new effective rate with no change to the carrying amount
  4. DIgnore the revision until the cash is actually received

Explanation

IFRS 9 requires that when estimates of cash flows are revised, the gross carrying amount is recalculated at the original effective interest rate and the adjustment is a gain or loss in profit or loss. A new prospective rate or OCI treatment is not appropriate for amortised cost assets.

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