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

Which two factors does Ind AS 109 (para 4.1.1) require an entity to consider together when classifying financial assets as measured at amortised cost, FVOCI or FVTPL, unless para 4.1.5 applies?

Classification of financial assets rests on both the entity's business model for managing the assets and the contractual cash flow characteristics of the asset. Together they decide whether the asset is measured at amortised cost, FVOCI or FVTPL, unless the fair value option in para 4.1.5 applies.

  1. AThe entity's business model for managing the assets and the contractual cash flow characteristics of the assetCorrect
  2. BThe credit rating of the issuer and the maturity of the asset
  3. CThe entity's reporting currency and the legal form of the asset
  4. DThe intended holding period and the entity's tax position

Explanation

Para 4.1.1 states classification is based on both (a) the entity's business model for managing the financial assets and (b) the contractual cash flow characteristics. The other options list factors not named in the standard for classification.

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