CFA Level I · CFA Level I Exam · Analyzing Balance Sheets
Under IFRS, a financial asset that is a debt instrument is held within a business model whose objective is to collect contractual cash flows, and those cash flows are solely payments of principal and interest. The asset is most likely measured at:
The asset is most likely measured at amortized cost. IFRS 9 uses this basis when a debt instrument is held to collect contractual cash flows and those cash flows are solely principal and interest. Fair value measurement applies to other business models or failed cash flow tests.
- Afair value through profit or loss
- Bamortized costCorrect
- Cfair value through other comprehensive income with no recycling
Explanation
IFRS 9 requires amortized cost when the business model is hold-to-collect and the cash flows meet the solely-payments-of-principal-and-interest test. Fair value through profit or loss is a residual category. Fair value through OCI with no recycling applies only to certain equity investments designated at initial recognition, not to debt instruments.
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