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MFRS 139

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Liyana Muhammad Jamal

on 7 April 2014

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Transcript of MFRS 139

Recognition of Financial Instruments
MEASUREMENT
MFRS 139
FINANCIAL INSTRUMENTS:
RECOGNITION & MEASUREMENT

DERIVATIVES
Is defined as a financial instrument or other contract:
(a) whose value changes in response to the
change in a specified interest rate, security
price etc
(b) that requires little or no initial investment
(c) settled at a future date

Examples are:
Forward contracts
Options
Only when the entity becomes a party to the contractual provisions of the instruments
Recognised on the SOFP

The asset is considered derecognised if:
(a) The contractual right to cash flows
from the financial asset expires
(b) The entity transfers:
(i) The contractual rights to receive
the cash flows
(ii) The entity retains the contractual
right but has a contractual
obligation to pay the cash flows to
another party


by

LIYANA BINTI MUHAMMAD JAMAL
Regular way of purchase or sale:
Trade date
- the date the entity commits itself to purchase (or sell) an asset
Settlement date
- the date when the asset is delivered to or by the entity
EMBEDDED DERIVATIVES
Affect the cash flow by making it dependent on some underlying measurement

Example:
A loan agreement
THANK YOU
FINANCIAL INSTRUMENTS
Financial
Asset
Financial
Liability
&
Equity
CATEGORIES
OF
FINANCIAL ASSETS
Financial Instruments
at Fair Value through
Profit or Loss
(FVPL)
Loans
and
Receivables
Available-for-sale
Investments
FVPL
Re-measured to fair value
Taken directly to income statement
2 categories of FVPL:
(a) held for trading
(b) designated as "FVPL" at initial
recognition
Held For Trading
A financial instrument is classified as held for trading if:
(i) it is acquired principally for the
purpose of selling in the near future
(ii) it shows a recent actual profit-
taking
(iii) it is a derivative instrument
Designated as "FVPL" on Initial Recognition
Irrevocable
Results in more relevant information because:
It eliminates or reduces an "accounting mismatch"
Instruments are managed on a fair value basis
Held-To-Maturity
Investment
Sold or reclassified
Can still be classified as HTM if:
(a) the assets are close to maturity date and
not affected by changes in interest rate
(b) the entity has received substantially all of
the original principal of the financial asset
(c) the transaction was an isolated event that
was beyond the entity's control
Fixed maturity
Fixed or determinable payments
Positive intention and ability to hold to maturity
A form of debt with fixed or determinable payments
Difference from HTM investments:
Not quoted in an active market
Need not have a fixed maturity dates
If they have fixed maturity date, management need not have the intention to hold them to maturity
Purchased with intention to sell or generate profit

Asset that is not classified as held-to-maturity, loans and receivables or financial asset at FVPL
Example
Derecognition of Financial Asset
DERECOGNITION
Derecognition of
Financial Liability
There is an exchange between the existing borrower and lender with terms:
(a) Subtantial modification of the existing financial
liability
(b) Extinguishment of the original financial liability and
recognition of a new financial liability
Transaction Cost

(a) FVPL (written off immediately)
Financial asset -
added
to the amount initially recognised
Financial liability -
deducted
from the amount of debt recognised initially
(b) Amortised cost
Included in the amortised cost and are amortised through profit or loss over the life of the instrument
(c) Available-for-sale financial asset
Indefinite life and no fixed payment
- recognised in the income statement
Indefinite life and fixed payments
- amortised to income statement
RECLASSIFICATION
Financial instruments that cannot be reclassified:
(a) Derivatives
(b) Instruments designated on initial recognition
at FVPL
(c) No instrument can be reclassified into FVPL
after initial recognition

Financial Instrument That Can Be Reclassified
(a) Financial asset no longer held for sale
(b) Available-for-sale asset
(c) Held to maturity asset
(d) Asset whose fair value was not previously available
(e) Asset whose fair value no longer available
Financial Instrument That Cannot Be Reclassified
GAINS
OR
LOSSES
HEDGE ACCOUNTING
An attempt to reduce the economic risks
Changes in fair value are offset and recognised in income statement
The effectiveness must be reliably measured
CATEGORIES OF HEDGE
Fair
Value
Hedge
Cash
Flow
Hedge
Net
Investment In A Foreign Operation
Full transcript