Ind AS 109, Financial InstrumentsThe objective of Ind AS 109 is to establish principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows.
Scope of Ind AS 109
This Standard should be applied by all entities to all types of financial instruments except:- interests in subsidiaries, associates and joint ventures other than those that are accounted for as per this standard in accordance with the permission given by Ind AS 110, Ind AS 27 or Ind AS 28
- rights and obligations under leases to which Ind AS 17 Leases However, lease receivables/ lease payables under finance lease are subject to the derecognition requirements of this Standard
- employers’ rights and obligations under employee benefit plans, to which Ind AS 19, Employee Benefits
- financial instruments issued by the entity that meet the definition of an equity
- rights and obligations arising under (i) an insurance contract or (ii) a contract that is within the scope of Ind AS 104 contains a discretionary participation feature.
- any forward contract to buy or sell an acquiree that will result in a business combination within the scope of Ind AS 103.
- loan commitments other than those which entity designates as financial liabilities at fair value through profit or loss, loan commitments that can be settled net in cash or by delivering or issuing another financial instrument and commitments to provide a loan at a below- market interest
- financial instruments, contracts and obligations under share -based payment transactions to which Ind AS 102, Share-based Payment applies except contract to buy/sell non-financial assets which are within the scope of this
- rights to payments to reimburse the entity for expenditure that it is required to make to settle a liability that it recognises as a provision in accordance with Ind AS
- rights and obligations within the scope of Ind AS 11, Construction Contracts, and Ind AS 18, Revenue, that are financial instruments, except for those that Ind AS 11 and Ind AS 18 specify are accounted for in accordance with this
- Contracts to buy or sell a non-financial item which cannot be settled net in cash or another financial instrument, or by exchanging financial
Recognition
Derecognition: Financial Assets
A financial asset shall be derecognised when, and only when:- the contractual rights to the cash flows from the financial asset expire, or
- it transfers the financial asset and the transfer qualifies for derecognition.
Derecognition: Financial Liabilities
Classification: Financial Assets
- the entity’s business model for managing the financial assets and
- the contractual cash flow characteristics of the financial
- business model objective is to hold financial assets in order to collect contractual cash flows and
- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount
- business model objective is achieved by both collecting contractual cash flows and selling financial assets and
- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount
Classification: Financial Liabilities
- financial liabilities at fair value through profit or loss .
- financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach
- financial guarantee
- commitments to provide a loan at a below-market interest
- contingent consideration recognised by an acquirer in a business combination to which Ind AS 103
Embedded derivatives
Reclassification
When, and only when, an entity changes its business model for managing financial assets, it shall reclassify all affected financial assets.Measurement
Hedge accounting
The objective of hedge accounting is to represent, in the financial statements, the effect of an entity’s risk management activities that use financial instruments to manage exposures arising from particular risks that could affect profit or loss (or other comprehensive income, in the case of investments in equity instruments for which an entity has elected to present changes in fair value in other comprehensive income).- Hedging instruments: A derivative measured at fair value through profit or loss may be designated as a hedging instrument
- Hedged items: A hedged item can be a recognised asset or liability, an unrecognised firm commitment, a forecast transaction or a net investment in a foreign operation. The hedged item can be a single item or a group of A hedge item should be reliably measurable.
- fair value hedge: a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, or a component of any such item, that is attributable to a particular risk and could affect profit or
- cash flow hedge: a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with all, or a component of, a recognised asset or liability or a highly probable forecast transaction, and could affect profit or
- hedge of a net investment in a foreign operation as defined in Ind AS
Qualifying criteria for hedge accounting
A hedging relationship qualifies for hedge accounting, only if, all of the following criteria are met:- the hedging relationship consists only of eligible hedging instruments and eligible hedged
- at the inception of the hedging relationship there is formal designation and documentation of the hedging relationship and the entity’s risk management objective and strategy for undertaking the
- the hedging relationship meets all of the following hedge effectiveness requirements:
- there is an economic relationship between the hedged item and the hedging instrument;
- the effect of credit risk does not dominate the value changes that result from that economic relationship; and
- the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the entity actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged