Reclassification of Financial Assets is required if and only if, the objective of the entity’s business model which manages those ‘Financial Assets’ changes.
[Reclassification of Financial Liability is NOT allowed.]
Table of Contents
Reclassification of Financial Assets
As per IFRS 9 if an entity determines that its business model has changed in a way that is SIGNIFICANT to its operations, then it reclassifies all affected Financial Assets prospectively from the first day of the next reporting period (the reclassification date).
Prior periods are NOT restated.
1. FVPL to FVOCI
| Fair Value on ‘Reclassification Date’ = New Carrying Amount Calculate Effective Interest Rate (New IRR) based on ‘New Carrying Amount’. |
2. FVPL to Amortized Cost
| Fair Value on ‘Reclassification Date’ = New Carrying Amount Calculate Effective Interest Rate (New IRR) based on ‘New Carrying Amount’. |
3. FVOCI to FVPL
| Fair Value on ‘Reclassification Date’ = New Carrying Amount Reclassify accumulated OCI balance to P&L on reclassification date. Effective Interest Rate determined at initial recognition is not adjusted as a result of reclassification. |
4. FVOCI to Amortized Cost
| Reclassify financial asset at fair value (FV). Remove cumulative balance from OCI and use it to adjust the reclassified fair value. Adjusted Amount = Amortized Cost Effective Interest Rate determined at initial recognition is NOT adjusted as a result of reclassification. |
5. Amortized Cost to FVPL
| Re-Measure to fair value (FV) with any difference recognized in P&L. Fair Value on ‘Reclassification Date’ = New Carrying Amount Effective Interest Rate determined at initial recognition is NOT adjusted as a result of reclassification. |
6. Amortized Cost to FVOCI
| Re-Measure to fair value (FV) with any difference recognized in OCI. Effective Interest Rate determined at initial recognition is NOT adjusted as a result of reclassification. |
Synopsis
Reclassification of Financial Assets REFERS to the process of changing the categorization of specific ‘Financial Instruments’ within an entity’s portfolio. This adjustment is often prompted by changes in the business’s intention for holding these assets, altering their designated purpose from trading to long-term investment or Vice-Versa.
Chartered Accountant – ICAP
Bachelor of Accounting (Honours) – AeU, Malaysia