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

  1. #21
    Accounting Standards
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    Default Financial Assets Carried at Amortised Cost Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment

    Financial Assets Carried at Amortised Cost Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment




    69. If there is objective evidence that an impairment loss on loans and receivables or heldto- maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the assetís carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial assetís original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset should be reduced either directly or through use of an allowance account18. The amount of the loss should be recognised in the statement of profit and loss.


    70. An entity first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant (see paragraph 65). If an entity determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

    71. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtorís credit rating), the previously recognised impairment loss should be reversed either directly or by adjusting an allowance account. The reversal should not result in a carrying amount of the financial asset that exceeds what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal should be recognised in the statement of profit and loss.

  2. #22
    Accounting Standards
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    Default Short-term Receivables Carried at Original Invoice Amount of Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment

    Short-term Receivables Carried at Original Invoice Amount of Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment


    72. If there is objective evidence that an impairment loss on short-term receivables carried at original invoice amount has been incurred (i.e., some of the short-term receivables may not be recoverable), the amount of the loss is measured as the difference between the receivablesí carrying amount and the undiscounted amount of estimated future cash flows (excluding future credit losses that have not been incurred). The carrying amount of the receivables should be reduced either directly or through use of an allowance account. The amount of the loss should be recognised in the statement of profit and loss.

    73. An entity first assesses whether objective evidence of impairment exists individually for short-term receivables that are individually significant, and individually or collectively for shortterm receivables that are not individually significant (see paragraph 65). If an entity determines that no objective evidence of impairment exists for an individually assessed short-term receivable, whether significant or not, it includes the receivable in a group of short-term receivables with similar credit risk characteristics and collectively assesses them for impairment.

    Short-term receivables that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

    74. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtorís credit rating), the previously recognised impairment loss should be reversed either directly or by adjusting the allowance account. The reversal should not result in a carrying amount of the short-term receivable that exceeds what the amount would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal should be recognised in the statement of profit and loss.

  3. #23
    Accounting Standards
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    Default Financial Assets Carried at Cost Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment

    Financial Assets Carried at Cost Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment


    75. If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset (see paragraph 51(c) and Appendix A paragraphs A100 and A101). The amount of the loss should be recognised in the statement of profit and loss. Such impairment losses should not be reversed.

  4. #24
    Accounting Standards
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    Default Available-for-Sale Financial Assets of Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment

    Available-for-Sale Financial Assets of Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment


    76. When a decline in the fair value of an available-for-sale financial asset has been recognised directly in the appropriate equity account and there is objective evidence that the asset is impaired (see paragraph 65), the cumulative loss that had been recognised directly in the equity account should be removed from the equity account and recognised in the statement of profit and loss even though the financial asset has not been derecognised.


    77. The amount of the cumulative loss that is removed from the equity account and recognised in the statement of profit and loss under paragraph 76 should be the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that financial asset previously recognised in the statement of profit and loss.


    78. Impairment losses recognised in the statement of profit and loss for an investment in an equity instrument classified as available for sale should not be reversed through the statement of profit and loss. This is because in case of equity instruments classified as available for sale, reversals of impairment losses cannot be distinguished from other increases in fair value.

    79. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the statement of profit and loss, the impairment loss should be reversed, with the amount of the reversal recognised in the statement of profit and loss.

  5. #25
    Accounting Standards
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    Default Hedging Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment

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


    80. If there is a designated hedging relationship between a hedging instrument and a hedged item as described in paragraphs 95-98 and Appendix A paragraphs A126-A128, accounting for the gain or loss on the hedging instrument and the hedged item should follow paragraphs 99-113.

  6. #26
    Accounting Standards
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    Default Hedging Instruments of Qualifying Instruments Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment

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


    81. This Standard does not restrict the circumstances in which a derivative may be designated as a hedging instrument provided the conditions in paragraph 98 are met, except for some written options (see Appendix A paragraph A114). However, a non-derivative financial asset or nonderivative financial liability may be designated as a hedging instrument only for a hedge of a foreign currency risk.


    82. For hedge accounting purposes, only instruments that involve a party external to the reporting entity (i.e., external to the group, segment or individual entity that is being reported on) can be designated as hedging instruments. Although individual entities within a consolidated group or divisions within an entity may enter into hedging transactions with other entities within the group or divisions within the entity, any such intragroup transactions are eliminated on consolidation.

    Therefore, such hedging transactions do not qualify for hedge accounting in the consolidated financial statements of the group. However, they may qualify for hedge accounting in the individual or separate financial statements of individual entities within the group or in segment reporting provided that they are external to the individual entity or segment that is being reported on.

  7. #27
    Accounting Standards
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    Default Designation of Hedging Instruments of Accounting Standard (AS) 30 Financial Instruments Recognition and Measurment

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


    83. There is normally a single fair value measure for a hedging instrument in its entirety, and the factors that cause changes in fair value are co-dependent. Thus, a hedging relationship is designated by an entity for a hedging instrument in its entirety. The only exceptions permitted
    are:

    (a) separating the intrinsic value and time value of an option contract and designating as the hedging instrument only the change in intrinsic value of an option and excluding change in its time value; and

    (b) separating the interest element and the spot price of a forward contract.

    These exceptions are permitted because the intrinsic value of the option and the premium on the forward can generally be measured separately. A dynamic hedging strategy that assesses both the intrinsic value and time value of an option contract can qualify for hedge accounting.


    84. A proportion of the entire hedging instrument, such as 50 per cent of the notional amount, may be designated as the hedging instrument in a hedging relationship. However, a hedging relationship may not be designated for only a portion of the time period during which a hedging instrument remains outstanding.

    85. A single hedging instrument may be designated as a hedge of more than one type of risk provided that (a) the risks hedged can be identified clearly; (b) the effectiveness of the hedge can
    be demonstrated; and (c) it is possible to ensure that there is specific designation of the hedging
    instrument and different risk positions.

    86. Two or more derivatives, or proportions of them (or, in the case of a hedge of currency risk, two or more non-derivatives or proportions of them, or a combination of derivatives and non-derivatives or proportions of them), may be viewed in combination and jointly designated as the hedging instrument, including when the risk(s) arising from some derivatives offset(s) those arising from others. However, an interest rate collar or other derivative instrument that combines a written option and a purchased option does not qualify as a hedging instrument if it is, in effect, a net written option (for which a net premium is received). Similarly, two or more instruments (or proportions of them) may be designated as the hedging instrument only if none of them is a
    written option or a net written option.

  8. #28
    Accounting Standards
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    Default Hedged Items of Qualifying Items Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment

    Hedged Items of Qualifying Items Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment


    87. A hedged item can be a recognised asset or liability, an unrecognised firm commitment, a highly probable forecast transaction or a net investment in a foreign operation. The hedged item can be (a) a single asset, liability, firm commitment, highly probable forecast transaction or net investment in a foreign operation, (b) a group of assets, liabilities, firm commitments, highly probable forecast transactions or net investments in foreign operations with similar risk characteristics or (c) in a portfolio hedge of interest rate risk only, a portion of the portfolio of financial assets or financial liabilities that share the risk being hedged.


    88. Unlike loans and receivables, a held-to-maturity investment cannot be a hedged item with respect to interest-rate risk or prepayment risk because designation of an investment as held-tomaturity requires an intention to hold the investment until maturity without regard to changes in
    the fair value or cash flows of such an investment attributable to changes in interest rates.

    However, a held-to-maturity investment can be a hedged item with respect to risks from changes
    in foreign currency exchange rates and credit risk.

    89. For hedge accounting purposes, only assets, liabilities, firm commitments or highly probable forecast transactions that involve a party external to the entity can be designated as hedged items. It follows that hedge accounting can be applied to transactions between entities or segments in the same group only in the individual or separate financial statements of those entities or segments and not in the consolidated financial statements of the group. As an exception, the foreign currency risk of an intragroup monetary item (e.g., a payable/receivable between two subsidiaries) may qualify as a hedged item in the consolidated financial statements if it results in an exposure to foreign exchange rate gains or losses that are not fully eliminated on consolidation in accordance with Accounting Standard (AS) 11, The Effects of Changes in Foreign Exchange Rates. In accordance with AS 11, foreign exchange rate gains and losses on intragroup monetary item are not fully eliminated on consolidation when the intragroup monetary item is transacted between two group entities that have different functional currencies. In addition, the foreign currency risk of a highly probable forecast intragroup transaction may qualify as a hedged item in consolidated financial statements provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and the foreign currency risk will affect consolidated profit or loss.

  9. #29
    Accounting Standards
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    Default Designation of Financial Items as Hedged Items of Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurment

    Designation of Financial Items as Hedged Items


    90. If the hedged item is a financial asset or financial liability, it may be a hedged item with respect to the risks associated with only a portion of its cash flows or fair value (such as one or more selected contractual cash flows or portions of them or a percentage of the fair value) provided that effectiveness can be measured. For example, an identifiable and separately measurable portion of the interest rate exposure of an interest-bearing asset or interest-bearing liability may be designated as the hedged risk (such as a risk-free interest rate or benchmark interest rate component of the total interest rate exposure of a hedged financial instrument).


    91. In a fair value hedge of the interest rate exposure of a portfolio of financial assets or financial liabilities (and only in such a hedge), the portion hedged may be designated in terms of an amount of a currency (e.g. an amount of rupees, dollars, euro, pounds or rand) rather than as individual assets (or liabilities). Although the portfolio may, for risk management purposes, include assets and liabilities, the amount designated is an amount of assets or an amount of liabilities. Designation of a net amount including assets and liabilities is not permitted. The entity may hedge a portion of the interest rate risk associated with this designated amount. For example, in the case of a hedge of a portfolio containing prepayable assets, the entity may hedge the change in fair value that is attributable to a change in the hedged interest rate on the basis of expected, rather than contractual, repricing dates. When the portion hedged is based on expected repricing dates, the effect that changes in the hedged interest rate have on those expected repricing dates should be included when determining the change in the fair value of the hedged item. Consequently, if a portfolio that contains prepayable items is hedged with a non-prepayable derivative, ineffectiveness arises if the dates on which items in the hedged portfolio are expected to prepay are revised, or actual prepayment dates differ from those expected.

  10. #30
    Accounting Standards
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    Default Designation of Non-Financial Items as Hedged Items

    Designation of Non-Financial Items as Hedged Items


    92. If the hedged item is a non-financial asset or non-financial liability, it should be designated as a hedged item (a) for foreign currency risks, or (b) in its entirety for all risks, because of the difficulty of isolating and measuring the appropriate portion of the cash flows or fair value changes attributable to specific risks other than foreign currency risks.

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