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WorkpaperIFRS 9 — Financial InstrumentsL2 · L3 · L4

Amortised cost schedule at the effective interest rate: net initial amount, interest, cash flows, closing amount and comparison with fair value

9 missions9 sections to document60 min
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Reviewed by
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Status
Published

Objective of the workpaper

List the contractual cash flows, compute the initial amount net of integral fees and transaction costs, apply the effective interest rate to the opening carrying amount, deduct the cash flow collected, check the closing amount and, for a debt instrument at FVOCI, reconcile amortised cost and fair value. The effective interest rate is a case datum; each period is one instance of the workpaper.

9 sections · 30 blocks · 6 calculations · 4 entries

  • IFRS 9 §5.4.1
  • IFRS 9 §B5.4.1
  • IFRS 9
  • IFRS 9 §5.7.10

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.

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

File and entity
Loan at the effective interest rate and debt securities: amortised cost schedule with integral fees, FVOCI with recycling and reclassification
Case tasks documented here
  • Compute the net initial amount of loan L (fair value, integral fee, direct costs).
  • Compute the interest of each period of loan L and of the first period of the Aldane bond.
  • Compute the closing carrying amount of each period of loan L and of the Aldane bond.
  • Check the closing amounts by discounting at the effective interest rate the remaining cash flow of loan L (start of period 3) and of the Aldane bond.
  • Compute the cumulative amount in other comprehensive income of the Aldane bond at 31 December 20X6.
  • Record the interest of the first period of loan L.
  • Record the collection of the first coupon of loan L.
  • Record the remeasurement of the Aldane bond at 31 December 20X6.
  • Record the recycling to profit or loss of the cumulative OCI on the sale of the Aldane bond.
1

Facts and data

Inputs

  • Contractual terms: amount, due dates, coupon, prepayment options, fees

    Text

  • Initial fair value of the instrument

    Number

    1,000,000

  • Integral fees received that form part of the effective interest rate (to deduct)

    Number

    30,000

  • Directly attributable transaction costs (to add for an asset)

    Number

    2,894.58

  • Opening carrying amount of the period

    Number

  • Effective interest rate (case datum)

    Number

  • Contractual cash flow collected in the period

    Number

  • Closing amount per the reference schedule (check)

    Number

  • Future cash flow to discount at the effective interest rate

    Number

  • Number of periods to discount

    Number

  • Closing fair value of the debt instrument at FVOCI

    Number

  • Closing amortised cost of the FVOCI instrument (from the schedule)

    Number

  • Cumulative OCI recycled to profit or loss on derecognition

    Number

2

Supporting documents

Evidence

  • Documents obtained and referenced (loan or security agreement, cash flow table, fair value statement)

    EvidenceRequired

3

Schedule analysis

Analysis

IFRS 9 §5.4.1IFRS 9 §B5.4.1IFRS 9

  • Points reviewed: effective interest rate and amortised cost

    ChecklistRequired

    • Cash flows over the expected life listed, taking all contractual terms into account (prepayment, options)
    • Integral fees and direct transaction costs included in the initial amount and amortised over the expected life
    • Other fees (servicing, syndication) excluded from the rate and handled under IFRS 15
    • Effective interest rate applied to the opening carrying amount of the period
    • Closing amount reconciled to the reference schedule
    • FVOCI instrument: interest at the effective rate in profit or loss, other fair value changes in OCI, cumulative amount recycled on derecognition
4

Amortised cost calculations

Calculations

IFRS 9 §5.4.1IFRS 9 §B5.4.1IFRS 9

  • Net initial amount (fair value less integral fees received plus transaction costs)

    Calculation

    972,894.58

    Initial fair value of the instrument ; − Integral fees received that form part of the effective interest rate (to deduct) ; Directly attributable transaction costs (to add for an asset)

  • Interest for the period at the effective interest rate (opening amount × rate)

    CalculationRequired

    Opening carrying amount of the period ; Effective interest rate (case datum)

  • Closing carrying amount (opening plus interest less cash flow collected)

    CalculationRequired

    Opening carrying amount of the period ; Interest for the period at the effective interest rate (opening amount × rate) ; − Contractual cash flow collected in the period ; Closing amount per the reference schedule (check)

  • Check difference with the reference schedule

    Calculation

    Opening carrying amount of the period ; Interest for the period at the effective interest rate (opening amount × rate) ; − Contractual cash flow collected in the period ; Closing amount per the reference schedule (check)

  • Cumulative OCI of the FVOCI instrument (closing fair value less closing amortised cost)

    Calculation

    0

    Closing fair value of the debt instrument at FVOCI ; − Closing amortised cost of the FVOCI instrument (from the schedule)

  • Present value of the cash flow at the effective interest rate

    Calculation

    Future cash flow to discount at the effective interest rate ; Effective interest rate (case datum) ; Number of periods to discount

5

Illustrative entries

Entries

  • Entry: interest at the effective interest rate

    Entry

    Debit Financial asset at amortised cost ← Interest for the period at the effective interest rate (opening amount × rate) ; Credit Interest income ← Interest for the period at the effective interest rate (opening amount × rate)

  • Entry: collection of the contractual cash flow

    Entry

    Debit Cash collected ← Contractual cash flow collected in the period ; Credit Financial asset at amortised cost ← Contractual cash flow collected in the period

  • Entry: remeasurement of a debt instrument at FVOCI

    Entry

    Debit Financial asset at FVOCI ← Cumulative OCI of the FVOCI instrument (closing fair value less closing amortised cost) ; Credit OCI reserve on debt instruments ← Cumulative OCI of the FVOCI instrument (closing fair value less closing amortised cost)

  • Entry: recycling of cumulative OCI on derecognition

    Entry

    Debit OCI reserve on debt instruments (released) ← Cumulative OCI recycled to profit or loss on derecognition ; Credit Reclassification adjustment in profit or loss ← Cumulative OCI recycled to profit or loss on derecognition

6

Judgment: estimation of the cash flows of the effective interest rate

Judgment

IFRS 9

  • Cash flows retained for the effective interest rate

    JudgmentRequired

    Contractual cash flows over the expected life, no re-estimate

    Contractual cash flows over the expected life, no re-estimate / Cash flows re-estimated (expected prepayment, terms)

    Professional judgment: the effective interest rate exactly discounts the estimated future cash flows over the expected life taking all contractual terms into account; the expected life and the options are matters of judgment, with no method or threshold imposed.

  • Rationale: expected life, options and estimate of the cash flows

    Text

    FLOWS_AS_FORECAST_NO_REESTIMATE

7

Effect on the financial statements

FS impact

  • Effect derived from the entries

    Table

8

Conclusion

Conclusion

  • Net initial amount, interest, closing amount, cumulative OCI and entries submitted to the reviewer

    ConclusionRequired

9

Normative references

References

  • Normative references cited in this workpaper

    References

10

Checks and financial statement impact

  • Cash flows retained documentedPass
  • Interest entry balancedNot evaluated
  • Collection entry balancedNot evaluated
  • Remeasurement entry balancedNot evaluated
  • Recycling entry balancedNot evaluated
Assets
0
Liabilities
0
Profit or loss
0
OCI
0
Equity
0