IFRS 9 Reclassification IFRS 9 does not allow reclassification of financial liabilities but allows reclassification of financial assets only it is evident from change in the investor's business model. As per IFRS 9, reclassification is allowed only when an entity changes its business model for managing financial assets. IFRS 9 introduces a more principles based approach to the classification of financial assets which must be classified into one of four categories:1. On July 24, 2014 the IASB published the complete version of IFRS 9, Financial Instruments, which replaces most of the guidance in IAS 39. An entity shall apply those amendments from 1 July 2008. Consistent with IAS 39, the classification of a financial asset is determined at initial recognition, however, if certain conditions are met, an asset may subsequently need to be reclassified. FVTPL3. Paragraphs IFRS 188.8.131.52-7 and IFRS 9.B5.6.1-2 provide guidance on accounting for reclassifications bet… Reclassification. 103G Reclassification of Financial Assets (Amendments to IAS 39 and IFRS 7), issued in October 2008, amended paragraphs 50 and AG8, and added paragraphs 50B–50F. [IFRS 9, paragraph 4.4.1] the general requirement is that an entity must apply IFRS 9 retrospectively at the date of initial application (other than hedging). If an entity reclassifies financial assets then it shall apply the reclassification prospectively from the reclassification date. There is no grandfathering for financial assets and liabilities existing at the date of initial recognition; i.e. FVTOCI for equity. Ultimately, the question of how an entity is affected by IFRS 9 … This includes amended guidance for the classification and measurement of financial assets by introducing a fair value through other comprehensive income category for certain debt instruments. Under IFRS 9, subsequent to initial recognition, an entity classifies its financial assets as measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL) depending on the (a) the entity’s business model for managing the assets, and (b) the contractual cash flow characteristics of the financial assets. As mentioned above, reclassification of financial assets is accounted for prospectively, therefore any previously recognised gains, losses (including impairment) or interest is not restated (IFRS 184.108.40.206). An entity shall not reclassify a financial asset in accordance with paragraph 50B, 50D or 50E before 1 July 2008. Amortised cost2. Equity investments and derivatives must always be measured at fair value and the general classification category is FVTPL. The entity shall not restate any previously recognized gains, losses or interest. Financial asset classification and measurement is an area where many changes have been introduced by IFRS 9. For financial assets, reclassification is required between FVTPL, FVTOCI and amortised cost, if and only if the entity's business model objective for its financial assets changes so its previous model assessment would no longer apply. Fair value through other comprehensive income (FVTOCI) for debt and4.
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