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

Ritu Securities Ltd holds a loan receivable. Which statement is correct about classification of financial assets under Ind AS 109 and the subsequent measurement of an entity's financial liabilities?

Financial assets are classified using both the entity's business model and the contractual cash flow characteristics. Financial liabilities are measured at amortised cost except for listed exceptions, including FVTPL liabilities such as derivative liabilities, failed-transfer liabilities, financial guarantees, below-market loan commitments and contingent consideration in business combinations.

  1. AFinancial assets are classified solely on the contractual cash flow characteristics; all financial liabilities are measured at amortised cost without exception
  2. BFinancial assets are classified on both the business model and the contractual cash flow characteristics; liabilities are at amortised cost except for specified categories such as FVTPL liabilities and financial guarantee contractsCorrect
  3. CFinancial assets are classified solely on the entity's business model; liabilities arising from failed derecognition transfers are at amortised cost
  4. DFinancial assets are classified on the basis of management's intention for each instrument; derivative liabilities are at amortised cost

Explanation

Paragraph 4.1.1 requires classification of financial assets on both the business model and the contractual cash flow characteristics. Paragraph 4.2.1 makes amortised cost the default for liabilities, with exceptions such as FVTPL liabilities (including derivative liabilities), transfer-related liabilities, guarantees, below-market loan commitments and contingent consideration. The other options use a single test or wrongly state that exceptions do not exist.

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