Articles on Ind AS 109 / IFRS 9

Equity derivatives and interest rate derivatives

Equity derivatives and interest rate derivatives Equity derivatives The important difference between futures contract and options contract is that in the case of a futures contract, the risk-reward is symmetric, whereas in an options contract, the risk reward is asymmetric. In other words, if a person enters into a futures contract, he or she stands to gain or lose exactly the same amount if the price of the underlying moves up or down. For example, let us assume that a person enters into a futures contract to buy 100 shares of ABC Limited at Rs 100 with the settlement date after 30 …
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Hedge Accounting as per indas109 / IFRS 9

Hedge Accounting as per indas109 / IFRS 9 It may be useful to understand the genesis of hedge accounting as to how the process itself matured over the last two decades. Even though this may not be relevant in the context of Indian Accounting Standards as we in India have inherited the accounting standards relating to financial instruments in general and hedge accounting in particular based on the accounting standards issue by the International Accounting Standards Board (IASB) as on 24 July, 2014.  The main reason for revamping the accounting standards relating to financial instruments by the IASB is the direct outcome …
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Accounting for Investments – Volume 1

Accounting for Investments – Volume 1 Accounting for Investments  Volume 1 attempts to give an exhaustive treatment of various accounting entries that should be recorded by any entity holding any financial instrument. Over the past two decades there have been several innovative financial instruments from the ‘Street’ that calls for special treatment from the accounting, legal and regulatory perspective. The accounting requirements are constantly being monitored and enhanced by the regulators and standard setters to provide more transparency in recording and reporting of these financial products. The book is written from the practical angle and is meant to cater to the …
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Debt instrument measured at FVOCI

Debt instrument measured at FVOCI For financial assets that are debt instruments measured at FVOCI, both the amortised cost and the fair value of the instrument are relevant. The reason for this is the objective of categorising a debt instrument as FVOCI is that both the contractual cash flows characteristic and the fair value of the instrument are relevant as the asset is held to receive contractual cash flows as well as to buy or sell such assets. For the contractual cash flow characteristic, amortised cost is relevant as the interest revenue would be based on the effective rate calculated at …
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Financial Instruments Book Series as per Ind AS 109 (indas109)

Financial Instruments Book Series as per Ind AS 109 (indas109) Preface to the Book Financial instruments are probably the most complex topic in the entire literature of accounting standards. Accounting for financial instruments in the Indian context was earlier covered by AS 30, AS 31, and AS 32 issued by the Institute of Chartered Accountants of India (ICAI) in the year 2007/2008. These standards were supposed to become mandatory from April 1, 2011, but did not see the light of the day as these were withdrawn by ICAI, mainly due to the fact that the corresponding accounting standards of International Accounting Standards …
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Accounting treatment for FVOCI Instruments

Accounting treatment for FVOCI Instruments Is there any difference between the accounting treatment for equity instruments and debt instruments classified as Fair Value Through Other Comprehensive Income (FVOCI)?  The answer is ‘yes’. Frequently participants in my class ask me the underlying reason for such a difference in the accounting treatment when both these types of financial assets are classified as FVOCI. Equity instruments The classification criteria for equity instruments and debt instruments are entirely different. Equity instruments can be classified as either Fair Value Through Profit or Loss (FVTPL) or FVOCI. The investor can exercise the choice without undue delay, provided the equity …
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Effective interest Rate

Effective interest Rate Effective interest rate – definition The rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortised cost of a financial liability. When calculating the effective interest rate, an entity shall estimate the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but shall not consider the expected credit losses. The calculation includes all fees and points paid or received between parties to the …
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Modification of contractual cash flows

Modification of contractual cash flows Modification due to renegotiation When the contractual cash flows of a financial asset are renegotiated or otherwise modified and the renegotiation or modification does not result in the de-recognition of that financial asset, an entity shall recalculate the gross carrying amount of the financial asset and shall recognise a modification gain or loss in profit or loss. The gross carrying amount of the financial asset is recalculated as the present value of the renegotiated or modified contractual cash flows that are discounted at the financial asset’s original effective interest rate (or credit-adjusted effective interest rate for POCI …
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