Initial recognition of a financial instrument

Learning objectives

• Determine the date on which the entity becomes party to the contractual provisions of the instrument and must recognise it, and distinguish the cash received from the derecognition of the receivable.L1
• Record the journal entries for the initial recognition of a financial instrument and measure their effect on the financial position, profit or loss and other comprehensive income.L1

Normative references

• IFRS 9 §3.1.1A financial asset or a financial liability is recognised when, and only when, the entity becomes party to the contractual provisions of the instrument; at initial recognition, the asset is classified in accordance with paras. 4.1.1 to 4.1.5 and measured in accordance with paras. 5.1.1 to 5.1.3, and the liability is classified in accordance with paras. 4.2.1 and 4.2.2 and measured in accordance with para. 5.1.1. The treatment of cash received by electronic transfer in settlement of a receivable is addressed in the Interpretations Committee's analysis (2022), not in the text of this paragraph.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• An entity recognises a financial asset when, and only when, it becomes party to the contractual provisions of the instrument.L1
• On 30 December, a customer of Sigma SA orders the transfer that settles a trade receivable; the cash is credited to Sigma's bank account only on 2 January. Sigma wishes to recognise the cash from 31 December by invoking the regime for regular way purchases and sales of financial assets. Which analysis is consistent with IFRS 9?L1
• Epsilon SA grants a partner a loan of {loan_amount}, which it disburses on the day the contract is signed. Case assumptions: the loan is measured at amortised cost and its initial fair value equals the amount disbursed. Record the initial recognition of the loan.L1