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Balance Sheet Classifications

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Mohammad Adil Hajee Abdoula

on 22 August 2013

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Transcript of Balance Sheet Classifications

Balance Sheet Classifications
By Adil Abdoula
Summer Intern 2013
Group Valuations

How are the different assets and liabilities accounted for?
Fair Value
IAS 39 Definition:
Amortised Cost
Cost of asset is spread throughout its useful economic life
The amount for which an asset could be exchanged, or liability settled, between knowledgeable, willing parties in an arm's length transaction.
Uses the Effective Interest Rate method
The Balance Sheet
Cash and due from banks
Interest-earning deposits with banks
Categories of Financial Asset
Financial Assets 'at fair value through profit or loss'
Consists of 3 different categories

Any asset held at fair value. Changes to fair value are carried through the p&l
Held to maturity
and loans and receivables
Available for Sale
Central bank funds sold and securities purchased under resale agreements

Securities borrowed
Financial assets at fair value through profit or loss

Financial assets available for sale
Equity method investments
Trading assets (Held for Trading)
Positive market values from derivative financial instruments

Financial assets designated at fair value through profit or loss

Property and equipment

Goodwill and other intangible assets

Other assets

Assets for current tax
and Deferred tax assets

IAS 39 Definition:
These are non derivative financial assets with fixed or determinable payments.
Held to maturity when positive intention and ability to hold to maturity.

Loans and Receivables when not quoted in active market.
These are carried at amortised cost and changes recorded in the P&L
IAS 39 Definition:
These are non derivative assets that are not classified as:
Loans and Receivables
Held-to-maturity investments
Financial assets at fair value through P&L
Initially recognised at fair value + transaction cost

Carried at fair value and changes recorded in
Other Comprehensive Income Statement or Income Statement
IAS 39:
IAS 39 Definition:
A financial asset or liability is classified as held for trading if it is:
acquired or incurred principally for the purpose of selling and repurchasing it in the near term
part of a portfolio of financial instruments for which there is evidence of a recent pattern of short term profit taking
a derivative
Objective is to generate profit from short-term differences in prices
Derivatives used by the bank for hedging purposes

Changes carried through P&L or OCI
An entity may designate a financial asset at fair value through profit or loss on initial recognition only in the following circumstances:

It eliminates or reduces measurement or recognition inconsistency
Fair value measurement allows better evaluation of asset's performance
It is a hybrid contract that contains one or more specific embedded derivatives
IAS 39 :
IFRS 7 :
Requires those financial assets/ liabilities to be disclosed including how it satisfies the requirements.
Deposit accounts - Very short term

Carried out at cost
Short and long term deposits

Initial recognition at fair value

Carried at cost or amortised cost
Transactions involving the legal sale of a financial asset with a simultaneous agreement to repurchase it at a specified price at a fixed future date.
(Under IAS 18 framework)
Price at which an orderly transaction would take place

Does not take into consideration the transaction costs

Market price or may use other techniques and models to obtain the Fair Value
Measures the value of those assets that are being transacted and accounting method depends on type of asset

Important to analyse whether the seller has transferred all the risks and rewards of ownership to the customer

Consists of assets whose risks and rewards
have been transferred to the bank
Assets borrowed from us by others

Risks and rewards have not been transferred to the customer

This consists of Associates and Joint Ventures.
(Under the IAS 28 and IAS 31 frameworks)

Equity Method accounting

Accounting treatment depends on types of assets

Includes own-use properties, furniture and equipment and software (operating systems only)

Carried at cost less accumulated depreciation and impairment losses
(under the IAS 16 framework)

Tested for impairment quarterly and changes carried through the P&L

Non-current assets or disposal groups are classified as held for sale when their carrying amounts will be recovered principally through sale rather than through continuing use
(Under the IFRS 5)

To meet criteria for held for sale, :
- The assets must be available for immediate sale
- Sale must be highly probable

Measured at lower of carrying amount and fair value less costs to sell

Already seen :)

IFRS 3 Definition:
It is defined as the future economic benefits that arise from assets that are not capable of being individually identified and separately recognised
IAS 38 Definition:
Intangible Asset
It is an identifiable non-monetary asset without physical substance
Measured at acquisition as the excess of the cost of the business.
Carried out at cost less accumulated impairment losses and changes recorded in P&L
Initially measured at fair value
Carried out at cost less accumulated depreciation and impairment losses or using a revaluation model
This is a receivable due to excess taxes paid

Also includes the amount available for deduction

Measured at cost
(Under the IAS 12 framework)
Loans issued by the bank

Carried out at amortised cost using the Effective Interest Rate method

Changes recorded through P&L

(under the IAS 39 framework)
(under the IAS 39 framework)
Amount paid for the asset or its par amount
Full transcript