IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

Chapter 25 / Financial Instruments: Recognition and Measurement (l AS 39)

261

JlIlv 31 2007

(e)

Dr Interest receivable Cr Available-for-sale financial asset Cr Interest revenue (To record interest rel'enlle fo r the fir st halfof2007)

5,000.00

889.00 4, 111.00

(I) An increase in the current market yield of a bond results in a decrease in its fair value (an unrealized holding loss). Since the bond is classified as available for sale, Entity A shou ld rec– ognize this change in fair value as a separate component of equity, but not in profit or loss. The new fair value is computed as the present value of the remaining cash flows discounted using the new quoted annual yield divided by half to obtain the semiannual yield (i.e., 9% / 2 = 4.5%): ($100,000 + $5,000) 11.045 = $100,47 8.47 Since the carrying amount absent the change in interest rates would have been $ 100,961.54, an unreal– ized holding loss of $483.07 has occurred. The journal entries are December 3 / 2007 Dr Equity 483.07 Cr Available-far-sale financial asset 483.07 (To record the lin realized holding loss as a separate component ofequity) 6.2.4 Summary

Measurement in the balance sheet Fair value

Income and expense items recognized ;n afoOt or loss All changes in fair value Interest income Dividend income Realized gains and losses Impairment losses Foreign currency gains and losses (for monetary items) Interest income Dividend income Realized gains and losses Impairment losses Dividend income Realized gains and losses Impairment losses Foreign currency gains and losses Interest income Realized gains and losses Impairment losses Foreign currency gains and losses Interest income All changes in fair value • Interest expense Realized gains and losses Foreign currency gains and losses Interest expense

Category, Financial assets at fair value through profit or loss

Fair value

Available-far-sale financial assets

Investments in unquoted equity instrument s that cannot be reliably measured

Cost

Held-to-maturity investments

Amortized cost

Amortized cost

Loans and receivables

Fair value

Financial liabilities at fair value through profit or loss Financial liabilities at amortized cost

Amortized cost

6.3 Impairment 6.3.1

lAS 39 requires an entity to assess at eac h balance sheet date whether there is any objective evidence that a financial asset or gro up of financial assets is impaired. Objective evidence of impairment that a financial asset or group of financial assets is impaired includ es observab le data about these loss events: (a) Significant financial difficu lty of the issuer or obligor (b) A breach of contract, such as a default or del inquency in interes t or principal pa yments (c) A troubled debt restructuring