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Professional fileIFRS 9L4 · Expert

File of a group: classification, measurement, impairment and derecognition of financial instruments (IFRS 9)

10 documents31 tasks≈ 300 min
0 / 33 items completed
Standards
IFRS 9 — Financial Instruments
Assistance levelFree workspace · autonomous situation
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: withdrawn

Case brief

Situation

Brenvane Group SA (fictitious entity) closes its consolidated accounts on 31 December 20X6. In 20X6 it acquired a convertible bond, granted a loan with an arrangement fee, acquired a zero-coupon bond at FVOCI, recorded the deterioration of a loan, sold loans to a fund with restrictions and renegotiated a bank loan. The preparer builds the file on financial instruments, submitted to a reviewer. Teaching simulation: the review trail of the file (preparation, reviewer notes and final sign-off) is simulated for demonstration purposes; it is neither a real review nor a validation of the content.

Your assignment

Draw up the plan of the file; classify the convertible bond and assess the intention to sell loans; compute the amortised cost of loan K and of the Pavane bond, their cumulative OCI and check them by discounting; build the provision matrix, assess the stage of loan M and compute the impairment charges; follow the derecognition tree for the sale to the fund; run the 10 % test on loan R; record the six entries, present their effect on the financial statements, list the points to confirm and conclude. One document is not useful and one piece of information was missing.

You prepare a complete file: documents, work, entries and conclusion, then compare your work with the solution and the review points of the file.

Autonomous professional situation

As on a real engagement: no method, no checklist and no hints. You identify the issues yourself, organise the work and defend your conclusion.

  • Organise the work
  • Document each point
  • Argue the conclusion

Documents

File documents

10 documents: open each one to read it.

Document 1Memo

Group profile and file conventions

Brenvane Group SA (fictitious entity) closes its consolidated accounts on 31 December 20X6. File conventions: amounts in EUR, interest and present values rounded to the cent (half up); the effective interest rates are given; loss rates, probabilities and percentages are file data and not rules; file conventions (pedagogical assumptions, not imposed by IFRS 9): the expected loss of loan M is computed as exposure × probability of default × loss given default, without discounting, and the €2,000 commissions on the convertible bond measured at fair value through profit or loss are recognised as expenses; differences are expressed as percentages; the entries are illustrative.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Conversion factor to a percentage (100)100%
Initial fair value of the Ostrel convertible bond€400,000.00
Commissions on the convertible bond€2,000.00
Cash paid for the convertible bond€402,000.00
Principal disbursed on loan K€800,000.00
Integral arrangement fee received (loan K)€20,000.00
Direct file costs (loan K)€1,536.81
Contractual annual coupon (loan K)€34,000.00
Effective interest rate of loan K5.5%
Last contractual cash flow of loan K€834,000.00
Number of periods between 31 December 20X6 and the last cash flow1 unit
Acquisition cost of the Pavane bond€500,000.00
Amount redeemed at maturity (Pavane)€540,800.00
Effective interest rate of the Pavane bond4%
Fair value of the Pavane bond at 31 December 20X6€531,000.00
Number of periods remaining at 31 December 20X6 (Pavane)1 unit
Balance of bucket 1€600,000.00
Historical losses of bucket 1€2,400.00
Historical receivables of bucket 1€600,000.00
Balance of bucket 2€200,000.00
Historical losses of bucket 2€6,000.00
Historical receivables of bucket 2€200,000.00
Balance of bucket 3€80,000.00
Historical losses of bucket 3€10,000.00
Historical receivables of bucket 3€40,000.00
Opening loss allowance on trade receivables€25,000.00
Exposure at default (loan M)€900,000.00
Loss given default (loan M)40%
Opening 12-month loss allowance (loan M)€4,000.00
Probability of default over the remaining life of loan M at the reporting date5%
Carrying amount of loan R€1,000,000.00
Remaining cash flow under the original terms (loan R)€1,102,500.00
Original effective interest rate of loan R5%
Number of periods of the original cash flow (loan R)2 units
Cash flow under the new terms (loan R)€1,230,000.00
Number of periods of the cash flow under the new terms (loan R)3 units
Net fee paid to the bank (loan R)€5,000.00
Percentage of the quantitative test of the standard (test datum)10%
Estimated emissions (tonnes)41,000 units

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort10

  • Group profile and file conventions

  • Ostrel convertible bond held and loan portfolio

  • Loan K granted to Dorsel Énergie

  • Pavane zero-coupon bond (FVOCI portfolio)

  • Trade receivables: ageing, history and loss allowance

  • Loan M to Calvane Logistique

  • Sale of loans to a fund with restrictions

  • Credit committee note on loan M

  • Renegotiation of bank loan R

  • Sustainability report

Relevant to the treatment0

    No effect0

      Workspace

      Work programme

      Organise your work freely: deal with each point, then argue your conclusion.

      1. Task 1Analysis

        Draw up the plan of the file: classification, amortised cost and fair value, impairment, derecognition and modification, with the judgments to document.

      2. Task 2Analysis

        Does the convertible bond held contain a derivative to separate? Test the cash flows of the whole and retain the category.

      3. Task 3Calculation

        Compute the initial amount of the convertible bond.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the initial amount of the convertible bond.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      4. Task 4Professional judgement

        Does the intention expressed to sell a few loans require a reclassification of the loan portfolio?

      5. Task 5Calculation

        Compute the net initial amount of loan K.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the net initial amount of loan K.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      6. Task 6Calculation

        Compute the 20X6 interest of loan K and of the Pavane bond.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the 20X6 interest of loan K and of the Pavane bond.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: 20X6 interest of the Pavane bond

      7. Task 7Calculation

        Compute the closing carrying amounts of loan K and of the Pavane bond.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the closing carrying amounts of loan K and of the Pavane bond.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Amortised cost of the Pavane bond at 31 December 20X6

      8. Task 8Calculation

        Check these amounts by discounting at the effective interest rate the remaining cash flow of each instrument.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Check these amounts by discounting at the effective interest rate the remaining cash flow of each instrument.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Present value of the redemption of the Pavane bond

      9. Task 9Calculation

        Compute the cumulative OCI of the Pavane bond.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the cumulative OCI of the Pavane bond.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      10. Task 10Analysis

        Which approach applies to the trade receivables and what are the inputs of the provision matrix?

      11. Task 11Calculation

        Compute the historical loss rate of each bucket.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the historical loss rate of each bucket.

        1. %
        2. %
        3. %

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Historical loss rate of bucket 3

      12. Task 12Calculation

        Compute the loss allowance of each bucket.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the loss allowance of each bucket.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Loss allowance of bucket 3

      13. Task 13Calculation

        Compute the total loss allowance of the matrix.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the total loss allowance of the matrix.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      14. Task 14Professional judgement

        Has loan M suffered a significant increase in credit risk? Which information was missing and how did you obtain it?

      15. Task 15Calculation

        Compute the expected loss of loan M (exposure × probability of default × loss given default).

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the expected loss of loan M (exposure × probability of default × loss given default).

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Expected loss of loan M

      16. Task 16Calculation

        Compute the impairment charge on the trade receivables and on loan M.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the impairment charge on the trade receivables and on loan M.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Impairment charge on loan M

      17. Task 17Professional judgement

        Follow the decision tree for the sale of loans to the fund (risks and rewards, control) and conclude.

      18. Task 18Calculation

        Compute the present values of the original cash flow and of the modified cash flow of loan R at the original effective interest rate.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the present values of the original cash flow and of the modified cash flow of loan R at the original effective interest rate.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Present value of the modified cash flow of loan R

      19. Task 19Calculation

        Compute the difference in present values, net fee included.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the difference in present values, net fee included.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      20. Task 20Calculation

        Compute the 10 % threshold of the original present value.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the 10 % threshold of the original present value.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      21. Task 21Calculation

        Compute the relative difference as a percentage of the original present value.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the relative difference as a percentage of the original present value.

        1. %

        Checks

        • 0 / 1 step entered
        • Amounts readable

      22. Task 22Professional judgement

        Is the modification of loan R substantial according to the quantitative test? What remains for judgment?

      23. Task 23Journal entries

        Record the acquisition of the convertible bond.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        3. Line 3

        TotalsDebit0Credit0

      24. Task 24Journal entries

        Record the 20X6 interest of loan K.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      25. Task 25Journal entries

        Record the collection of the 20X6 coupon of loan K.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      26. Task 26Journal entries

        Record the remeasurement of the Pavane bond at FVOCI.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      27. Task 27Journal entries

        Record the charge to the loss allowance on the trade receivables.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      28. Task 28Journal entries

        Record the charge to the loss allowance of loan M.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      29. Task 29Effects on the financial statements

        What is the cumulative effect of the six entries on the financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €
        3. €
        4. €

        Checks

        • 0 / 4 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      30. Task 30Analysis

        Which points remain to be supported or confirmed before the review (open notes, assumptions, conventions)?

      31. Task 31Conclusion

        Write the conclusion of the file.

      File review

      Points raised during the review of this file: read them as the preparer would.

      Review notes

      • BlockingResolvedReviewer note (blocking): support stage 2 of loan M by the comparison of default risks
      • Non-blockingOpenReviewer note: specify the cash flows included in the 10 % test and the qualitative elements examined

      Information requests

      • ObtainedRequest to the credit committee: probability of default of loan M at the reporting date
      • Assumption documentedDocumented assumption: no forward-looking adjustment of the matrix rates

      Completion checklist

      • Classification and cash flow test of each instrument documentedDone
      • Amortised cost schedules reconciled to the contractual cash flowsDone
      • Provision matrix and stage of loan M supportedDone
      • Derecognition tree and 10 % test performedDone
      • Entries balanced and effect on the financial statements establishedDone
      • Assumption of no forward-looking adjustment for the engagement reviewer to confirmTo review

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 33).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IFRS 9 §4.1.2
      • IFRS 9 §4.1.2A
      • IFRS 9 §B4.1.7B
      • IFRS 9 §5.4.1
      • IFRS 9 §B5.4.1
      • IFRS 9
      • IFRS 9 §4.4.1
      • IFRS 9 §B4.4.1
      • IFRS 9 §5.5.3
      • IFRS 9 §5.5.5
      • IFRS 9
      • IFRS 9 §5.5.9
      • IFRS 9 §5.5.11
      • IFRS 9 §5.5.15
      • IFRS 9 §3.2.6
      • IFRS 9 §3.3.2
      • IFRS 9 §B3.3.6