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

Orion Pharma Ltd. adopted Ind AS 109 on 1 April 2025 (the date of initial application). In earlier years it held a bond portfolio under a business model of trading. On 1 April 2025, the facts and circumstances show that the entity manages the bonds to collect contractual cash flows, and the contractual terms are solely payments of principal and interest. How should the entity assess the classification at transition under Ind AS 109?

At transition the entity assesses the business model condition using facts and circumstances existing at the date of initial application, and applies the resulting classification retrospectively regardless of its business model in earlier periods. Here the bonds qualify for amortised cost, not FVTPL based on the old trading model.

1. AUse the business model that existed in prior reporting periods, and classify the bonds as FVTPL
2. BAssess the business model condition on the basis of facts and circumstances at the date of initial application, and apply the resulting classification retrospectively irrespective of prior business modelsCorrect
3. CAssess the condition at the date of initial application but apply the classification prospectively only
4. DAllow free choice between amortised cost and FVTPL without assessing the business model