270 / 488
Chapter
25 /
Financial Instruments: Recognition and Measurement
(l AS 39)
261
889.00
4, 111.00
5,000.00
(e)
JlIlv
31
2007
Dr Interest receivable
Cr Available-for-sale financial asset
Cr Interest revenue
(To record interest rel'enlle fo r the fir st halfof2007)
(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
Category,
Financial assets at fair value through profit or
loss
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
Available-far-sale financial assets
Investments in unquoted equity instrument s
that cannot be reliably measured
Held-to-maturity investments
Loans and receivables
Financial liabilities at fair value through
profit or loss
Financial liabilities at amortized cost
Fair value
Cost
Amortized cost
Amortized cost
Fair value
Amortized cost
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
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