IFRS 9 — Financial Liabilities at Amortized Cost: Accounting

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.

The Bottom Line

Financial Liabilities at Amortized Cost as per IFRS 9 are INITIALLY measured at Fair Value less transaction costs and SUBSEQUENTLY measured at Amortized Cost. The objective of IFRS 9 is to ESTABLISH principles for the financial reporting of Financial Assets and liabilities that will present relevant and valuable information to users of financial statements

Leave a Comment