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

Under Ind AS 109 paragraph 4.1.1, on which two bases does an entity classify financial assets as at amortised cost, FVOCI or FVTPL, unless paragraph 4.1.5 applies?

Financial assets are classified using both the entity's business model for managing the assets and the contractual cash flow characteristics of the asset. Together these decide whether the asset is measured at amortised cost, FVOCI or FVTPL, unless the paragraph 4.1.5 exception applies.

  1. AEntity's credit rating and the asset's maturity
  2. BEntity's business model for managing the assets and the contractual cash flow characteristics of the assetCorrect
  3. CMarket liquidity of the asset and the holder's tax position
  4. DCarrying amount and the asset's legal form

Explanation

Paragraph 4.1.1 states that classification is made on the basis of both the entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. Credit rating, tax position and legal form are not the stated criteria. Paragraph 4.1.5 is the fair value option exception.

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