Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's Guide

CATEGORIES OF FINANCIAL INSTRUMENTS—AN OVERVIEW

Financial instruments are classified into the following categories:

• Fair value through profit and loss (FVPL);
• Held-to-maturity (HTM);
• Available-for-sale (AFS);
• Loans and receivables (LAR).

Investments in debt securities are classified as either fair value through profit and loss, as available-for-sale securities, or as held-to-maturity investments.

Amendment made through IFRS 91

An entity shall classify financial assets as subsequently measured at either amortized cost or fair value on the basis of both:

a) The entity’s business model for managing the financial assets; and

b) The contractual cash flow characteristics of the financial asset. (IFRS 9 Para 4.1)

A financial asset shall be measured at amortized cost if both of the following conditions are met:

a) The asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and

b) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. (IFRS 9 Para 4.2)

For the purpose of this IFRS, interest is consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time. (IFRS 9 Para 4.3)

A financial asset shall be measured at fair value unless it is measured at amortized cost in accordance with paragraph 4.2. (IFRS 9 Para 4.4)

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