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Thread: 30 Accounting Standard 30 - Financial Instruments: Recognition and Measurment - AS 30

  1. #11
    Accounting Standards
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    Default Continuing Involvement in Transferred Assets of Accounting Standard (AS) 30 Financial Instruments Recognition and Measurment

    Continuing Involvement in Transferred Assets (see paragraph 19(c)(ii))


    30. If an entity neither transfers nor retains substantially all the risks and rewards of ownership of a transferred asset, but retains control of the transferred asset, the entity continues to recognise the transferred asset to the extent of its continuing involvement. The extent of the entity’s continuing involvement in the transferred asset is the extent to which it is exposed to changes in the value of the transferred asset. For example:

    (a)
    when the entity’s continuing involvement takes the form of guaranteeing the transferred asset, the extent of the entity’s continuing involvement is the lower of (i) the carrying amount of the asset and (ii) the maximum amount of the consideration received that the entity could be required to repay (‘the guarantee amount’).


    (b)
    when the entity’s continuing involvement takes the form of a written or purchased option (or both) on the transferred asset, the extent of the entity’s continuing involvement is the amount of the transferred asset that the entity may repurchase. However, in case of a written put option on an asset that is measured at fair value, the extent of the entity’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price (see paragraph A71).

    (c)
    when the entity’s continuing involvement takes the form of a cash-settled option or similar provision on the transferred asset, the extent of the entity’s continuing involvement is measured in the same way as that which results from
    non-cash settled options as set out in (b) above.

    31. When an entity continues to recognise an asset to the extent of its continuing involvement, the entity also recognises an associated liability. Despite the other measurement requirements in this Standard, the transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the entity has retained. The associated liability is measured in such a way that the net carrying amount of the transferred asset and the associated liability is:

    (a) the amortised cost of the rights and obligations retained by the entity, if the transferred asset is measured at amortised cost; or

    (b) equal to the fair value of the rights and obligations retained by the entity when measured on a stand-alone basis, if the transferred asset is measured at fair value.

    32. The entity should continue to recognise any income arising on the transferred asset to the extent of its continuing involvement and should recognise any expense incurred on the associated liability.

    33. For the purpose of subsequent measurement, recognised changes in the fair value of the transferred asset and the associated liability are accounted for consistently with each other in accordance with paragraph 61, and should not be offset.

    34.
    If an entity’s continuing involvement is in only a part of a financial asset (e.g., when an entity retains an option to repurchase part of a transferred asset, or retains a residual interest that does not result in the retention of substantially all the risks and rewards of ownership and the entity retains control), the entity allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. For this purpose, the requirements of paragraph 28 apply. The difference between:


    (a) the carrying amount allocated to the part that is no longer recognised; and
    (b) the sum of (i) the consideration received for the part no longer recognised and

    (ii) any cumulative gain or loss allocated to it that had been recognised directly in the appropriate equity account (see paragraph 61(b)) should be recognised in the statement of profit and loss. A cumulative gain or loss that had been recognised in the equity account is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair values of those parts.


    35. If the transferred asset is measured at amortised cost, the option in this Standard to designate a financial liability as at fair value through profit or loss is not applicable to the associated liability.
    Last edited by Accounting Standards; 09-08-2010 at 11:58 AM.

  2. #12
    Accounting Standards
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    Default All Transfers Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment

    All Transfers Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment


    36. If a transferred asset continues to be recognised, the asset and the associated liability should not be offset. Similarly, the entity should not offset any income arising from the transferred asset with any expense incurred on the associated liability (see AS 31, Financial Instruments: Presentation, paragraph 72).


    37. If a transferor provides non-cash collateral (such as debt or equity instruments) to the transferee, the accounting for the collateral by the transferor and the transferee depends on whether the transferee has the right to sell or repledge the collateral and on whether the transferor has defaulted. The transferor and transferee should account for the collateral as follows:

    (a) If the transferee has the right by contract or custom to sell or repledge the collateral, then the transferor should reclassify that asset in its balance sheet (e.g., as a loaned asset, pledged equity instruments or repurchase receivable) separately from other assets.

    (b) If the transferee sells collateral pledged to it, it should recognise the proceeds from the sale and a liability measured at fair value for its obligation to return the collateral.

    (c) If the transferor defaults under the terms of the contract and is no longer entitled to redeem the collateral, it should derecognise the collateral, and the transferee should recognise the collateral as its asset initially measured at fair value or, if it has already sold the collateral, derecognise its obligation to return the collateral.

    (d) Except as provided in (c), the transferor should continue to carry the collateral as its asset, and the transferee should not recognise the collateral as an asset.

  3. #13
    Accounting Standards
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    Default Regular Way Purchase or Sale of a Financial Asset Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment

    Regular Way Purchase or Sale of a Financial Asset Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment



    38. A regular way purchase or sale of financial assets should be recognised and derecognised using trade date accounting or settlement date accounting.

    39. A regular way purchase or sale of financial assets is recognised using either trade date accounting or settlement date accounting as described in paragraphs 41 and 42. The method used
    is applied consistently for all purchases and sales of financial assets that belong to the same
    category of financial assets defined in paragraphs 8.2 to 8.5. For this purpose, assets that are
    held for trading form a separate category from assets designated at fair value through profit or
    loss.


    40. A contract that requires or permits net settlement of the change in the value of the contract is not a regular way contract. Instead, such a contract is accounted for as a derivative in the period between the trade date and the settlement date.

    41. The trade date is the date that an entity commits itself to purchase or sell an asset. Trade date accounting refers to (a) the recognition of an asset to be received and the liability to pay for it on the trade date, and (b) derecognition of an asset that is sold, recognition of any gain or loss on disposal and the recognition of a receivable from the buyer for payment on the trade date. Generally, interest does not start to accrue on the asset and corresponding liability until the settlement date when title passes.

    42. The settlement date is the date on which an asset is delivered to or by an entity.

    Settlement date accounting refers to (a) the recognition of an asset on the day it is received by the
    entity, and (b) the derecognition of an asset and recognition of any gain or loss on disposal on the
    day that it is delivered by the entity. When settlement date accounting is applied, an entity accounts for any change in the fair value of the asset to be received during the period between
    the trade date and the settlement date in the same way as it accounts for the acquired asset. In
    other words, the change in value is not recognised for assets carried at cost or amortised cost; it
    is recognised in the statement of profit and loss for assets classified as financial assets at fair value through profit or loss; and it is recognised in the appropriate equity account for assets classified as available for sale.

  4. #14
    Accounting Standards
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    Default Derecognition of a Financial Liability of Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment

    Derecognition of a Financial Liability Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment


    43. An entity should remove a financial liability (or a part of a financial liability) from its balance sheet when, and only when, it is extinguished—i.e., when the obligation specified in the contract is discharged or cancelled or expires.


    44. An exchange between an existing borrower and lender of debt instruments with substantially different terms should be accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of the terms of an existing financial liability or a part of it (whether or not attributable to the financial difficulty of the debtor) should be accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.


    45. The difference between the carrying amount of a financial liability (or part of a financial liability) extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, should be recognised in the statement of profit and loss.


    46. If an entity repurchases a part of a financial liability, the entity allocates the previous carrying amount of the financial liability between the part that continues to be recognised and the part that is derecognised based on the relative fair values of those parts on the date of the repurchase. The difference between (a) the carrying amount allocated to the part derecognised and (b) the consideration paid, including any non-cash assets transferred or liabilities assumed, for the part derecognised is recognised in the statement of profit and loss.

  5. #15
    Accounting Standards
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    Default Measurement Initial Measurement of Financial Assets and Financial Liabilities Accounting Standard (AS) 30 Financial Instruments: Recognition and Measu

    Measurement Initial Measurement of Financial Assets and Financial LiabilitiesAccounting Standard (AS) 30 Financial Instruments: Recognition and Measurment


    47. When a financial asset or financial liability is recognised initially, an entity should measure it as follows:

    (a) A financial asset or financial liability at fair value through profit or loss should be measured at fair value on the date of acquisition or issue.

    (b) Short-term receivables and payables with no stated interest rate should be measured at original invoice amount if the effect of discounting is immaterial.

    (c) Other financial assets or financial liabilities should be measured at fair value plus/ minus transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.

    48. When an entity uses settlement date accounting for an asset that is subsequently measured at cost or amortised cost, the asset is recognised initially at its fair value on the trade date (see paragraphs 38–42).

    49. Often it will be obvious whether the effect of discounting of short-term receivables and payables would be material or immaterial and there would be no need to make detailed calculations. In other cases, it will be necessary to make detailed calculations.

  6. #16
    Accounting Standards
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    Default Subsequent Measurement of Financial Assets of Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment

    Subsequent Measurement of Financial Assets of Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment


    50. For the purpose of measuring a financial asset after initial recognition, this Standard classifies financial assets into the following four Categories defined in paragraphs 8.2 to 8.5:

    (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.

    These categories apply to measurement and profit or loss recognition under this Standard.

    The entity may use other descriptors for these categories or other categorisations when presenting information on the face of the financial statements. The entity should disclose in the notes the information required by AS 32 on Financial Instruments: Disclosures.

    51. After initial recognition, an entity should 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 8.4, which should be measured at amortised cost using the effective interest method. However, short-term receivables with no stated interest rate should not be measured at amortised cost if the effect of discounting is immaterial. Such short-term receivables should be measured at the original invoice amount;

    (b) held-to-maturity investments as defined in paragraph 8.3, which should be measured at 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 can not be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, which should be measured at cost (see Appendix A paragraphs A100 and A101).

    Financial assets that are designated as hedged items are subject to measurement under the hedge accounting requirements in paragraphs 99-113. All financial assets except those measured at fair value through profit or loss are subject to review for impairment in accordance with paragraphs 64-79 and Appendix A paragraphs A104-A113.

  7. #17
    Accounting Standards
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    Default Subsequent Measurement of Financial Liabilities of Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment

    Subsequent Measurement of Financial Liabilities Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment


    52. After initial recognition, an entity should measure all financial liabilities at amortised cost using the effective interest method, except for:

    (a) financial liabilities at fair value through profit or loss. Such liabilities, including derivatives that are liabilities, should be measured at fair value other than a derivative liability that is linked to and must be settled by delivery of an unquoted equity instrument whose fair value cannot be reliably measured, which should be measured at cost.

    (b) financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies. Paragraphs 29 and 31 apply to the measurement of such financial liabilities.

    (c) short-term payables with no stated interest rate should be measured at the original invoice amount if the effect of discounting is immaterial.

    (d) financial guarantee contracts as defined in paragraph 8.6. After initial recognition, an issuer of such a contract should (unless paragraph 52(a) or (b) applies) measure it at the higher of:

    (i) the amount determined in accordance with AS 29; and

    (ii) the amount initially recognised (see paragraphs 47-49) less, when appropriate, cumulative amortisation recognised, if any.

    (e) commitments to provide a loan at a below-market interest rate. After initial recognition, an issuer of such a commitment should (unless paragraph 52(a) applies) measure it at the higher of:

    (i) the amount determined in accordance with AS 29; and

    (ii) the amount initially recognised (see paragraphs 47-49) less, when appropriate, cumulative amortisation recognised, if any.

    Financial liabilities that are designated as hedged items are subject to the hedge accounting requirements in paragraphs 99-113.

  8. #18
    Accounting Standards
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    Default Fair Value Measurement Considerations of Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment

    Fair Value Measurement Considerations of Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment


    53. In determining the fair value of a financial asset or a financial liability for the purpose of applying this Standard, AS 31, Financial Instruments: Presentation or AS 32 on Financial Instruments: Disclosures17, an entity should apply paragraphs A88-A102 of Appendix A.

    54. The best evidence of fair value is quoted prices in an active market. If the market for a financial instrument is not active, an entity establishes fair value by using a valuation technique. The objective of using a valuation technique is to establish what the transaction price would have been on the measurement date in an arm’s length exchange motivated by normal business considerations. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. If there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, the entity uses that technique. The chosen valuation technique makes maximum use of market inputs and relies as little as possible on entity-specific inputs. It incorporates all factors that market participants would consider in setting a price and is consistent with accepted economic methodologies for pricing financial instruments. Periodically, an entity calibrates the valuation technique and tests it for validity using prices from any observable current market transactions in the same instrument (i.e., without modification or repackaging) or based on any available observable market data.


    55. The fair value of a financial liability with a demand feature (e.g., a demand deposit) is not
    less than the amount payable on demand, discounted from the first date that the amount could be
    required to be paid.

  9. #19
    Accounting Standards
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    Default Reclassifications of Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment

    Reclassifications of Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment


    56. An entity should not reclassify a financial instrument into or out of the fair value through profit or loss category while it is held or issued.

    57. If, as a result of a change in intention or ability, it is no longer appropriate to classify an investment as held to maturity, it should be reclassified as available for sale and remeasured at fair value, and the difference between its carrying amount and fair value should be accounted for in accordance with paragraph 61(b).

    58. Whenever sales or reclassification of more than an insignificant amount of held-tomaturity investments do not meet any of the conditions in paragraph 8.3, any remaining heldto- maturity investments should be reclassified as available for sale. On such reclassification, the difference between their carrying amount and fair value should be accounted for in accordance with paragraph 61(b).


    59. If a reliable measure becomes available for a financial asset or financial liability for which such a measure was previously not available, and the asset or liability is required to be measured at fair value if a reliable measure is available (see paragraphs 51(c) and 52), the asset or liability should be remeasured at fair value, and the difference between its carrying amount and fair value should be accounted for in accordance with paragraph 61.

    60. If,
    (a) as a result of a change in intention or ability; or

    (b) in the rare circumstance that a reliable measure of fair value is no longer available (see paragraphs 51(c) and 52); or

    (c) the ‘two preceding financial years’ referred to in paragraph 8.3 have passed, it becomes appropriate to carry a financial asset or financial liability at cost or amortised cost rather than at fair value, the fair value carrying amount of the financial asset or the financial liability on that date becomes its new cost or amortised cost, as applicable. Any previous gain or loss on that asset that has been recognised directly in the appropriate equity account in accordance with paragraph 61(b) should be accounted for as follows:

    (a) In the case of a financial asset with a fixed maturity, the gain or loss should be amortised to the statement of profit and loss over the remaining life of the heldto- maturity investment using the effective interest method. Any difference between the new amortised cost and maturity amount should also be amortised over the remaining life of the financial asset using the effective interest method, similar to the amortisation of a premium and a discount. If the financial asset is subsequently impaired, any gain or loss that has been recognised directly in the appropriate equity account is recognised in the statement of profit and loss in accordance with paragraph 76.

    (b) In the case of a financial asset that does not have a fixed maturity, the gain or loss should remain in the appropriate equity account until the financial asset is sold or otherwise disposed of, when it should be recognised in the statement profit and loss. If the financial asset is subsequently impaired any previous gain or loss that has been recognised directly in the appropriate equity account is recognised in the statement of profit and loss in accordance with paragraph 76.

    Gains and Losses

    61. A gain or loss arising from a change in the fair value of a financial asset or financial liability that is not part of a hedging relationship (see paragraphs 99-113), should be recognised, as follows.

    (a) A gain or loss on a financial asset or financial liability classified as at fair value through profit or loss should be recognised in the statement of profit and loss.

    (b) A gain or loss on an available-for-sale financial asset should be recognised directly in an appropriate equity account, say, Investment Revaluation Reserve

    Account, except for impairment losses (see paragraphs 76-79) and foreign exchange gains and losses (see Appendix A paragraph A103), until the financial asset is derecognised, at which time the cumulative gain or loss previously recognised in the appropriate equity account should be recognised in the statement of profit and loss. However, interest calculated using the effective interest method (see paragraph 8.9 and Appendix A paragraphs A23-A27) is recognised in the statement of profit and loss. Dividends on an available-forsale equity instrument are recognised in the statement of profit and loss when the entity's right to receive payment is established (see AS 9, Revenue
    Recognition).

    62. For financial assets and financial liabilities carried at amortised cost (see paragraphs 51 and 52), a gain or loss is recognised in the statement of profit and loss when the financial asset or financial liability is derecognised or impaired, and through the amortisation process. However, for financial assets or financial liabilities that are hedged items (see paragraphs 87- 94 and Appendix A paragraphs A118-A125) the accounting for the gain or loss should follow paragraphs 99-113.

    63. If an entity recognises financial assets using settlement date accounting (see paragraphs 38-42), any change in the fair value of the asset to be received during the period between the trade date and the settlement date is not recognised for assets carried at cost or amortised cost (other than impairment losses). For assets carried at fair value, however, the change in fair value should be recognised in the statement of profit and loss or in the appropriate equity account, as appropriate under paragraph 61.

  10. #20
    Accounting Standards
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    Default Impairment and Uncollectibility of Financial Assets Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment

    Impairment and Uncollectibility of Financial Assets Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment


    64. An entity should assess at each balance sheet date whether there is any objective evidence that a financial asset or group of financial assets is impaired. If any such evidence exists, the entity should apply paragraph 69 (for financial assets carried at amortised cost), paragraph 72-74 (for short-term receivables with no stated interest rate carried at original invoice amount), paragraph 75 (for financial assets carried at cost) or paragraph 76 (for available-for-sale financial assets) to determine the amount of any impairment loss.

    65. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. It may not be possible to identify a single, discrete event that caused the impairment. Rather the combined effect of several events may have caused the impairment. Losses expected as a result of future events, no matter how likely, are not recognised. Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the holder of the asset about the following loss events:

    (a) significant financial difficulty of the issuer or obligor;

    (b) a breach of contract, such as a default or delinquency in interest or principal payments;

    (c) the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

    (d) it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;

    (e) an active market no longer exists for that financial asset because of financial difficulties; or

    (f) observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, including:

    (i) adverse changes in the payment status of borrowers in the group (e.g., an increased number of delayed payments or an increased number of credit card borrowers who have reached their credit limit and are paying the minimum monthly amount); or

    (ii) national or local economic conditions that correlate with defaults on the assets in the group (e.g., an increase in the unemployment rate in the geographical area of the borrowers, a decrease in property prices for mortgages in the relevant area, a decrease in oil prices for loan assets to oil
    producers, or adverse changes in industry conditions that affect the borrowers in the group).


    66. In case an active market no longer exists because an entity’s financial instruments have ceased to be publicly traded is not evidence of impairment. A downgrade of an entity's credit rating is not, by itself, evidence of impairment, although it may be evidence of impairment when considered with other available information. A decline in the fair value of a financial asset below its cost or amortised cost is not necessarily evidence of impairment (for example, a decline in the fair value of an investment in a debt instrument that results from an increase in the risk-free interest rate).

    67. In addition to the types of events in paragraph 65, objective evidence of impairment for an investment in an equity instrument includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment.

    68. In some cases the observable data required to estimate the amount of an impairment loss on a financial asset may be limited or no longer fully relevant to current circumstances. For example, this may be the case when a borrower is in financial difficulties and there are few available historical data relating to similar borrowers. In such cases, an entity uses its experienced judgement to estimate the amount of any impairment loss. Similarly an entity uses its experienced judgement to adjust observable data for a group of financial assets to reflect current circumstances (see paragraph A109). The use of reasonable estimates is an essential part of the preparation of financial statements and does not undermine their reliability.

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