IFRS 9—Financial Liabilities at Amortized Cost

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Financial Liabilities at Amortized Cost are accounted for i.e. the liability’s Effective Rate of Interest is CHARGED as a finance cost to the Profit or Loss (not the interest paid in cash) and changes in Market Rate of interest are IGNORED – i.e. the liability is not revalued at the reporting date.

Financial Liabilities at Amortized Cost – Accounting As Per IFRS 9

At INITIAL recognition, Financial Liability is Classified and Measured at amortized cost UNLESS either:

  • The financial liability is held for trading and is therefore required to be Measured at FVPL (e.g. derivatives not designated in a hedging relationship); OR
  • The entity elects to measure the financial liability at FVPL (using the fair value option).

[Reclassification of ‘Financial Liability’ after initial recognition is NOT allowed.]

Financial Liabilities at Amortized Cost
Examples of Financial Liabilities that are Likely to be Classified and Accounted for at Amortized Cost INCLUDE:
(a) Trade payables
(b) Loan payables with standard interest rates (such as a benchmark rate plus a Margin) OR the host contract arising from a loan agreement that contains separable ‘Embedded Derivatives‘
(c) Bank borrowings

The Accounting Requirements for Financial Liabilities at Amortized Cost are:

  • It is initially Measured at fair value less transaction costs;
  • It is subsequently Measured at amortized cost;
  • Interest expense is recognized in P&L using the effective interest rate (IRR); AND
  • Foreign exchange gains and losses on the amortized cost are recognized in P&L. 

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