This extract has been prepared by IASC Foundation staff and has not been approved by the IASB. For the requirements reference must be made to International Financial Reporting Standards.
IAS 39 Financial Instruments: Recognition and Measurement
The objective of this Standard is to establish principles for recognising and measuring financial assets, financial liabilities andsome contracts to buy or sell non-financial items. Requirements for presenting information about financial instruments are in IAS 32 Financial Instruments: Presentation. Requirements for disclosing information about financial instruments are in IFRS 7 Financial Instruments: Disclosures. Initial recognition An entity shall recognise a financial asset or a financial liability on its balance sheetwhen, and only when, the entity becomes a party to the contractual provisions of the instrument. Derecognition of a financial liability An entity shall remove a financial liability (or a part of a financial liability) from its balance sheet when, and only when, it is extinguished—ie when the obligation specified in the contract is discharged or cancelled or expires. Initial measurement of financialassets and financial liabilities When a financial asset or financial liability is recognised initially, an entity shall measure it at its fair value plus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Fair value is theamount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Derecognition of a financial asset The following flow chart illustrates the evaluation of whether and to what extent a financial asset is derecognised.
Subsequent measurement of financial assets For the purpose of measuring a financial asset after initialrecognition, this Standard classifies financial assets into the following four categories defined in paragraph 9: (a) financial assets at fair value through profit or loss; (b) held-to-maturity investments; (c) loans and receivables; and (d) available-for-sale financial assets. An amendment to the Standard, issued in June 2005, permits an entity to designate a financial asset or financial liability(or a group of financial assets, financial liabilities
or both) on initial recognition as one(s) to be measured at fair value, with changes in fair value recognised in profit or loss. To impose discipline on this categorisation, an entity is precluded from reclassifying financial instruments into or out of this category. After initial recognition, an entity shall measure financial assets,including derivatives that are assets, at their fair values, without any deduction for transaction costs it may incur on sale or other disposal, except for the following financial assets: (a) loans and receivables as defined in paragraph 9, which shall be measured at amortised cost using the effective interest method; (b) held-to-maturity investments as defined in paragraph 9, which shall be measuredat amortised cost using the effective interest method; and (c) investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, which shall be measured at cost (see Appendix A paragraphs AG80 and AG81). Financial assetsthat are designated as hedged items are subject to measurement under the hedge accounting requirements in paragraphs 89–102. All financial assets except those measured at fair value through profit or loss are subject to review for impairment in accordance with paragraphs 58–70 and Appendix A paragraphs AG84– AG93. Subsequent measurement of financial liabilities After initial recognition, an...