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Workpaper template

WorkpaperIFRS 9 — Financial InstrumentsL1 · L2 · L3 · L4

Classification decision for a financial asset: business model, contractual cash flow test, fair value option, equity election and initial measurement

10 missions10 sections to document60 min
Prepared by
AI-assisted draft
Reviewed by
Not reviewed — human review required
Status
Published

Objective of the workpaper

Describe the instrument and its terms, gather the evidence on the business model and the sales history, assess the contractual cash flows (principal and interest), document the fair value option or the equity election where relevant, retain the category, compute the initial amount and prepare the entry and the note. Amounts are case data; the business model and the cash flows are judgments, with no threshold imposed by the standard.

10 sections · 33 blocks · 1 calculation · 4 entries

  • IFRS 9 §4.1.2
  • IFRS 9 §4.1.2A
  • IFRS 9 §4.1.4
  • IFRS 9 §4.1.5
  • IFRS 9 §5.7.5
  • IFRS 9 §B4.1.1
  • IFRS 9 §B4.1.2C
  • IFRS 9 §B4.1.7B
  • IFRS 9 §B4.1.9D
  • IFRS 9 §B4.1.12
  • IFRS 9 §5.1.1

Work this workpaper as a mission

Each case that uses this template opens in the mission workspace: data, analysis, calculation, entries, conclusion and review, with your progress saved.

10 instances from the cases: the calculations and entries below are run by the calculation engine.

File and entity
Classification and initial measurement of an investment portfolio: business model, contractual cash flow test, equity election and transaction costs
Case tasks documented here
  • Classify the Corvane bonds (A): assess the business model and the contractual cash flows, then retain the category.
  • Classify the Norvelle shares (B) and the Eurolink structured note (D).
  • Classify the Sablon stake (C) and state the effect of the election on the presentation of fair value changes.
  • Compute the initial amount of each instrument on recognition.
  • Compute the fair value change of the Sablon stake (C) to recognise at the reporting date.
  • Record the acquisition of the Corvane bonds (A).
  • Record the acquisition of the Norvelle shares (B).
  • Record the remeasurement of the Sablon stake (C) at 31 December 20X6.
1

Facts and data

Inputs

  • Instrument and contractual terms: principal, interest, prepayment, non-recourse feature, indexations

    Text

    FIXED_COUPON_BULLET_BOND

  • Nature of the instrument examined

    Choice

    Debt security

    Debt security / Loan or loan portfolio / Investment in equity instruments / Structured or hybrid instrument / Tranche of a securitisation structure

  • Evidence on the business model: reporting to key management, risk management, remuneration of managers

    Text

    COLLECTION_OBJECTIVE_DOCUMENTED

  • Sales history and expectations: frequency, value, timing and reasons

    Text

    FEW_SALES_AFTER_CREDIT_DETERIORATION

  • Fair value at initial recognition

    Number

    1,980,000

  • Directly attributable transaction costs added to the initial amount (instrument not at FVTPL)

    Number

    12,000

  • Amount recognised: asset at amortised cost (fair value plus transaction costs)

    Number

    1,992,000

  • Fair value recognised: instrument at FVTPL

    Number

  • Transaction costs expensed: instrument at FVTPL

    Number

  • Cash paid: fair value plus transaction costs

    Number

  • Fair value change of an equity investment with the election (in other comprehensive income)

    Number

  • Fair value at the reclassification date

    Number

  • Carrying amount before reclassification

    Number

  • Fair value difference recognised on reclassification

    Number

2

Supporting documents

Evidence

  • Documents obtained and referenced (contract, management minutes, reports to key management, valuation)

    EvidenceRequired

3

Classification analysis

Analysis

IFRS 9 §4.1.2IFRS 9 §4.1.2AIFRS 9 §B4.1.7B

  • Points reviewed: classification of financial assets

    ChecklistRequired

    • Objective of the business model identified: collect contractual cash flows, collect and sell, or other; holding to maturity is not required
    • Whole set of evidence reviewed: reporting to key management, risk management, remuneration of managers
    • Sales assessed (frequency, value, timing, reasons, expectations) with no threshold imposed by the standard
    • Contractual cash flows assessed: principal (initial fair value) and interest (time value, credit risk, basic lending risks and costs, margin)
    • Specific features reviewed: modified time value, prepayment, indexation unrelated to a basic lending arrangement
    • Fair value option: conditions for the irrevocable designation at initial recognition checked (accounting mismatch)
    • Equity election: investment not held for trading, irrevocable election instrument by instrument at initial recognition
    • Portfolio managed at fair value or held for trading: not held to collect cash flows; equity instruments at FVTPL by default
4

Initial amount of the asset

Calculations

IFRS 9 §5.1.1

  • Initial amount (fair value plus directly attributable transaction costs, excluding an instrument at FVTPL)

    CalculationRequired

    1,992,000

    Fair value at initial recognition ; Directly attributable transaction costs added to the initial amount (instrument not at FVTPL)

5

Illustrative entries

Entries

  • Entry: asset at amortised cost

    Entry

    AccountDebitCredit
    Financial asset at amortised cost1,992,000
    Cash paid1,992,000

  • Entry: asset at FVTPL with costs expensed

    Entry

    Debit Financial asset at FVTPL ← Fair value recognised: instrument at FVTPL ; Debit Transaction costs expensed ← Transaction costs expensed: instrument at FVTPL ; Credit Cash paid ← Cash paid: fair value plus transaction costs

  • Entry: remeasurement of an equity investment with the election

    Entry

    Debit Equity investment (OCI election) ← Fair value change of an equity investment with the election (in other comprehensive income) ; Credit OCI reserve on equity (no recycling) ← Fair value change of an equity investment with the election (in other comprehensive income)

  • Entry: reclassification from amortised cost to FVTPL

    Entry

    Debit Financial asset at FVTPL (fair value) ← Fair value at the reclassification date ; Credit Financial asset at amortised cost (derecognised from the category) ← Carrying amount before reclassification ; Credit Fair value gain in profit or loss ← Fair value difference recognised on reclassification

6

Judgments: business model, contractual cash flows, fair value option

Judgment

IFRS 9 §4.1.2IFRS 9 §4.1.2AIFRS 9 §B4.1.7B

  • Business model retained

    JudgmentRequired

    Collect contractual cash flows

    Collect contractual cash flows / Collect and sell / Other model (trading, managed at fair value, or not applicable)

    Professional judgment: the business model is inferred from the activities carried out to achieve the objective; the standard sets no sales threshold beyond which the collection model is ruled out, and sales linked to credit deterioration remain consistent with collection.

  • Rationale: evidence retained, sales and reasons

    Text

    COLLECTION_OBJECTIVE_DOCUMENTED

  • Contractual cash flows: solely principal and interest

    JudgmentRequired

    Cash flows solely of principal and interest

    Cash flows solely of principal and interest / Cash flows other than principal and interest (or not applicable)

    Professional judgment: the principal is the initial fair value and may vary over the life; features exposing the cash flows to risks or volatility unrelated to a basic lending arrangement, for example share prices, do not give solely principal and interest cash flows.

  • Rationale: terms analysed and conclusion

    Text

    PRINCIPAL_AND_INTEREST_ONLY

  • Fair value option or equity election

    JudgmentRequired

    No designation or election

    No designation or election / Designated at FVTPL (accounting mismatch) / Election to present in OCI (equity investment)

    Professional judgment: the designation at FVTPL is irrevocable and subject to a significant reduction of an accounting mismatch; the equity election is irrevocable, instrument by instrument, for an investment not held for trading.

  • Rationale: condition for the designation or election

    Text

    NO_ACCOUNTING_MISMATCH

  • Measurement category retained

    ChoiceRequired

    Amortised cost

    Amortised cost / Fair value through other comprehensive income (debt instrument) / Fair value through profit or loss / Fair value through other comprehensive income (equity election)

7

Effect on the financial statements

FS impact

  • Effect derived from the entries

    Table

8

Points to document for the classification note

Disclosure

IFRS 9 §4.1.2IFRS 9 §4.1.2A

  • Points to complete in the note (the disclosures belong to IFRS 7)

    ChecklistRequired

    • Measurement categories used and instruments concerned
    • Irrevocable designations at fair value through profit or loss listed
    • Business model judgment summarised with no threshold presented as imposed
    • Equity elections listed, noting that they are irrevocable

  • Draft note: classification of financial assets

    Text

9

Conclusion

Conclusion

  • Business model, contractual cash flows, category retained, initial amount and entry submitted to the reviewer

    ConclusionRequired

10

Normative references

References

  • Normative references cited in this workpaper

    References

11

Checks and financial statement impact

  • Category retainedPass
  • Amortised cost entry balancedPass
  • FVTPL entry balancedNot evaluated
  • Equity entry balancedNot evaluated
  • Reclassification entry balancedNot evaluated
Assets
0
Liabilities
0
Profit or loss
0
OCI
0
Equity
0