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Ind AS - 109 - Rules - B. Indian Accounting Standards (Ind AS) - Companies (Indian Accounting Standards) Rules, 2015 - Ind AS - 109 - Indian Accounting Standard (Ind AS) 109 (The Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.) Chapter 1 Objective 1.1 The objective of this Standard is to establish principles for the financial reporting of financial assets and financial liabilities th .....

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nd Joint Ventures. However, in some cases, Ind AS110, Ind AS 27 or Ind AS 28 require or permit an entity to account for an interest in a subsidiary, associate or joint venture in accordance with some or all of the requirements of this Standard. Entities shall also apply this Standard to derivatives on an interest in a subsidiary, associate or joint venture unless the derivative meets the definition of an equity instrument of the entity in Ind AS 32 : Presentation. (b) rights and obligations unde .....

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mployee Benefits applies. (d) issued by the entity that meet the definition of an equity instrument in Ind AS 32 (including options and warrants) or that are required to be classified as an equity instrument in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D of Ind AS 32. However, the holder of such equity instruments shall apply this Standard to those instruments, unless they meet the exception in (a). (e) rights and obligations arising under (i) an insurance contract as define .....

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of financial guarantee contracts has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting that is applicable to insurance contracts, the issuer may elect to apply either this Standard or Ind AS104 to such financial guarantee contracts (see paragraphs B2.5-B2.6). The issuer may make that election contract by contract, but the election for each contract is irrevocable. (f) any forward contract between an acquirer and a selling shareholder to .....

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ents that are not otherwise within the scope of this Standard. Also, all loan commitments are subject to the derecognition requirements of this Standard. (h) , contracts and obligations under share-based payment transactions to which Ind AS102 Share-based Payment applies, except for contracts within the scope of paragraphs 2.4-2.7 of this Standard to which this Standard applies. (i) rights to payments to reimburse the entity for expenditure that it is required to make to settle a liability that .....

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that Ind AS 115 specifies are accounted for in accordance with this Standard for the purposes of recognising impairment gains or losses.] 2.3 The following loan commitments are within the scope of this Standard: (a) loan commitments that the entity designates as financial liabilities at fair value through profit or loss (see paragraph 4.2.2). An entity that has a past practice of selling the assets resulting from its loan commitments shortly after origination shall apply this Standard to all it .....

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2.4 This Standard shall be applied to those contracts to buy or sell a non-financial item that can be settled net in cash or another financial instrument, or by exchanging , as if the contracts were , with the exception of contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the entity s expected purchase, sale or usage requirements. However, this Standard shall be applied to those contracts that an entity .....

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sale or usage requirements. This designation is available only at inception of the contract and only if it eliminates or significantly reduces a recognition inconsistency (sometimes referred to as an accounting mismatch ) that would otherwise arise from not recognising that contract because it is excluded from the scope of this Standard (see paragraph 2.4). 2.6 There are various ways in which a contract to buy or sell a nonfinancial item can be settled net in cash or another financial instrumen .....

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r by selling the contract before its exercise or lapse); (c) when, for similar contracts, the entity has a practice of taking delivery of the underlying and selling it within a short period after delivery for the purpose of generating a profit from shortterm fluctuations in price or dealer s margin; and (d) when the non-financial item that is the subject of the contract is readily convertible to cash. A contract to which (b) or (c) applies is not entered into for the purpose of the receipt or de .....

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is Standard. 2.7 A written option to buy or sell a non-financial item that can be settled net in cash or another financial instrument, or by exchanging , in accordance with paragraph 2.6(a) or 2.6(d) is within the scope of this Standard. Such a contract cannot be entered into for the purpose of the receipt or delivery of the non-financial item in accordance with the entity s expected purchase, sale or usage requirements. Chapter 3 Recognition and derecognition 3.1 Initial recognition 3.1.1 An en .....

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nd 4.2.2 and measure it in accordance with paragraph 5.1.1. Regular way purchase or sale of financial assets 3.1.2 A regular way purchase or sale of financial assets shall be recognised and derecognised, as applicable, using trade date accounting or settlement date accounting (see paragraphs B3.1.3- B3.1.6). 3.2 Derecognition of financial assets 3.2.1 In consolidated financial statements, paragraphs 3.2.2-3.2.9, B3.1.1, B3.1.2 and B3.2.1-B3.2.17 are applied at a consolidated level. Hence, an ent .....

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.9 are applied to a part of a financial asset (or a part of a group of similar financial assets) if, and only if, the part being considered for derecognition meets one of the following three conditions. (i) The part comprises only specifically identified cash flows from a financial asset (or a group of similar financial assets). For example, when an entity enters into an interest rate strip whereby the counterparty obtains the right to the interest cash flows, but not the principal cash flows fr .....

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erparty, each counterparty is not required to have a proportionate share of the cash flows provided that the transferring entity has a fully proportionate share. (iii) The part comprises only a fully proportionate (pro rata) share of specifically identified cash flows from a financial asset (or a group of similar financial assets). For example, when an entity enters into an arrangement whereby the counterparty obtains the rights to a 90 per cent share of interest cash flows from a financial asse .....

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(i) the rights to the first or the last 90 per cent of cash collections from a financial asset (or a group of financial assets), or (ii) the rights to 90 per cent of the cash flows from a group of receivables, but provides a guarantee to compensate the buyer for any credit losses up to 8 per cent of the principal amount of the receivables, paragraphs 3.2.3-3.2.9 are applied to the financial asset (or a group of similar financial assets) in its entirety. In paragraphs 3.2.3-3.2.12, the term fina .....

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on in accordance with paragraph 3.2.6. (See paragraph 3.1.2 for regular way sales of financial assets.) 3.2.4 An entity transfers a financial asset if, and only if, it either: (a) transfers the contractual rights to receive the cash flows of the financial asset, or (b) retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients in an arrangement that meets the conditions in paragraph 3.2.5. .....

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sset. Short-term advances by the entity with the right of full recovery of the amount lent plus accrued interest at market rates do not violate this condition. (b) The entity is prohibited by the terms of the transfer contract from selling or pledging the original asset other than as security to the eventual recipients for the obligation to pay them cash flows. (c) The entity has an obligation to remit any cash flows it collects on behalf of the eventual recipients without material delay. In add .....

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ewards of ownership of the financial asset. In this case: (a) if the entity transfers substantially all the risks and rewards of ownership of the financial asset, the entity shall derecognise the financial asset and recognise separately as assets or liabilities any rights and obligations created or retained in the transfer. (b) if the entity retains substantially all the risks and rewards of ownership of the financial asset, the entity shall continue to recognise the financial asset. (c) if the .....

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t to the extent of its continuing involvement in the financial asset (see paragraph 3.2.16). 3.2.7 The transfer of risks and rewards (see paragraph 3.2.6) is evaluated by comparing the entity s exposure, before and after the transfer, with the variability in the amounts and timing of the net cash flows of the transferred asset. An entity has retained substantially all the risks and rewards of ownership of a financial asset if its exposure to the variability in the present value of the future net .....

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ed with the financial asset (eg because the entity has sold a financial asset subject only to an option to buy it back at its fair value at the time of repurchase or has transferred a fully proportionate share of the cash flows from a larger financial asset in an arrangement, such as a loan sub-participation, that meets the conditions in paragraph 3.2.5). 3.2.8 Often it will be obvious whether the entity has transferred or retained substantially all risks and rewards of ownership and there will .....

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e entity has retained control (see paragraph 3.2.6(c)) of the transferred asset depends on the transferee s ability to sell the asset. If the transferee has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally and without needing to impose additional restrictions on the transfer, the entity has not retained control. In all other cases, the entity has retained control. Transfers that qualify for derecognition 3.2.10 .....

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d to be more than adequate compensation for the servicing, a servicing asset shall be recognised for the servicing right at an amount determined on the basis of an allocation of the carrying amount of the larger financial asset in accordance with paragraph 3.2.13. 3.2.11 If, as a result of a transfer, a financial asset is derecognised in its entirety but the transfer results in the entity obtaining a new financial asset or assuming a new financial liability, or a servicing liability, the entity .....

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flows that are part of a debt instrument, see paragraph 3.2.2(a)) and the part transferred qualifies for derecognition in its entirety, the previous carrying amount of the larger financial asset shall be allocated between the part that continues to be recognised and the part that is derecognised, on the basis of the relative fair values of those parts on the date of the transfer. For this purpose, a retained servicing asset shall be treated as a part that continues to be recognised. The differen .....

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cognised needs to be measured. When the entity has a history of selling parts similar to the part that continues to be recognised or other market transactions exist for such parts, recent prices of actual transactions provide the best estimate of its fair value. When there are no price quotes or recent market transactions to support the fair value of the part that continues to be recognised, the best estimate of the fair value is the difference between the fair value of the larger financial asse .....

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ll recognise any income on the transferred asset and any expense incurred on the financial liability. Continuing involvement in transferred assets 3.2.16 If an entity neither transfers nor retains substantially all the risks and rewards of ownership of a transferred asset, and retains control of the transferred asset, the entity continues to recognise the transferred asset to the extent of its continuing involvement. The extent of the entity s continuing involvement in the transferred asset is t .....

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d option (or both) on the transferred asset, the extent of the entity s continuing involvement is the amount of the transferred asset that the entity may repurchase. However, in the case of a written put option on an asset that is measured at fair value, the extent of the entity s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price (see paragraph B3.2.13). (c) When the entity s continuing involvement takes the form of a cash-set .....

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that reflects the rights and obligations that the entity has retained. The associated liability is measured in such a way that the net carrying amount of the transferred asset and the associated liability is: (a) the amortised cost of the rights and obligations retained by the entity, if the transferred asset is measured at amortised cost, or (b) equal to the fair value of the rights and obligations retained by the entity when measured on a stand-alone basis, if the transferred asset is measure .....

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involvement is in only a part of a financial asset (eg when an entity retains an option to repurchase part of a transferred asset, or retains a residual interest that does not result in the retention of substantially all the risks and rewards of ownership and the entity retains control), the entity allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involvement, and the part it no longer recognises on the basis of the relativ .....

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air value through profit or loss is not applicable to the associated liability. All transfers 3.2.22 If a transferred asset continues to be recognised, the asset and the associated liability shall not be offset. Similarly, the entity shall not offset any income arising from the transferred asset with any expense incurred on the associated liability (see paragraph 42 of Ind AS 32). 3.2.23 If a transferor provides non-cash collateral (such as debt or equity instruments) to the transferee, the acco .....

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ble) separately from other assets. (b) If the transferee sells collateral pledged to it, it shall recognise the proceeds from the sale and a liability measured at fair value for its obligation to return the collateral. (c) If the transferor defaults under the terms of the contract and is no longer entitled to redeem the collateral, it shall derecognise the collateral, and the transferee shall recognise the collateral as its asset initially measured at fair value or, if it has already sold the co .....

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expires. 3.3.2 An exchange between an existing borrower and lender of debt instruments with substantially different terms shall be accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of the terms of an existing financial liability or a part of it (whether or not attributable to the financial difficulty of the debtor) shall be accounted for as an extinguishment of the original financial lia .....

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e part that continues to be recognised and the part that is derecognised based on the relative fair values of those parts on the date of the repurchase. The difference between (a) the carrying amount allocated to the part derecognised and (b) the consideration paid, including any non-cash assets transferred or liabilities assumed, for the part derecognised shall be recognised in profit or loss. Chapter 4 Classification 4.1 Classification of financial assets 4.1.1 Unless paragraph 4.1.5 applies, .....

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jective is to hold financial assets in order to collect contractual cash flows and (b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Paragraphs B4.1.1-B4.1.26 provide guidance on how to apply these conditions. 4.1.2A A financial asset shall be measured at fair value through other comprehensive income if both of the following conditions are met: (a) the financial asset .....

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financial asset at initial recognition. Paragraph B4.1.7B provides additional guidance on the meaning of principal. (b) interest consists of consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as a profit margin. Paragraphs B4.1.7A and B4.1.9A-B4.1.9E provide additional guidance on the meaning of interest, including the meaning of the time value of m .....

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hensive income (see paragraphs 5.7.5-5.7.6). Option to designate a financial asset at fair value through profit or loss 4.1.5 Despite paragraphs 4.1.1-4.1.4, an entity may, at initial recognition, irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an accounting mismatch ) that would otherwise arise from measuring assets or liabilities or recog .....

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qualify for derecognition or when the continuing involvement approach applies. Paragraphs 3.2.15 and 3.2.17 apply to the measurement of such financial liabilities. (c) financial guarantee contracts. After initial recognition, an issuerof such a contract shall (unless paragraph 4.2.1(a) or (b) applies) subsequently measure it at the higher of: (i) the amount of the loss allowance determined in accordance with Section 5.5 and 20[(ii) the amount initially recognised (see paragraph 5.1.1) less, when .....

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in accordance with the principles of Ind AS 115.] (e) contingent consideration recognised by an acquirer in a business combination to which Ind AS103 applies. Such contingent consideration shall subsequently be measured at fair value with changes recognised in profit or loss. Option to designate a financial liability at fair value through profit or loss 4.2.2 An entity may, at initial recognition, irrevocably designate a financial liability as measured at fair value through profit or loss when .....

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its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity s key management personnel (as defined in Ind AS 24 Related Party Disclosures), for example, the entity s board of directors and chief executive officer (see paragraphs B4.1.33-B4.1.36). 4.3 Embedded derivatives 4.3.1 An embedded derivative is a component of a hybrid contract that also inclu .....

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ble that the variable is not specific to a party to the contract. A derivative that is attached to a financial instrument but is contractually transferable independently of that instrument, or has a different counterparty, is not an embedded derivative, but a separate financial instrument. Hybrid contracts with financial asset hosts 4.3.2 If a hybrid contract contains a host that is an asset within the scope of this Standard, an entity shall apply the requirements inparagraphs 4.1.1-4.1.5 to the .....

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rms as the embedded derivative would meet the definition of a derivative; and (c) the hybrid contract is not measured at fair value with changes in fair value recognised in profit or loss (ie a derivative that is embedded in a financial liability at fair value through profit or loss is not separated). 4.3.4 If an embedded derivative is separated, the host contract shall be accounted for in accordance with the appropriate Standards. This Standard does not address whether an embedded derivative sh .....

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hybrid instrument is first considered that separation of the embedded derivative(s) is prohibited, such as a prepayment option embedded in a loan that permits the holder to prepay the loan for approximately its amortised cost. 4.3.6 If an entity is required by this Standard to separate an embedded derivative from its host, but is unable to measure the embedded derivative separately either at acquisition or at the end of a subsequent financial reporting period, it shall designate the entire hybri .....

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ough profit or loss. 4.4 Reclassification 4.4.1 When, and only when, an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with paragraphs 4.1.1-4.1.4. See paragraphs 5.6.1-5.6.7, B4.4.1-B4.4.3 and B5.6.1-B5.6.2 for additional guidance on reclassifying financial assets. 4.4.2 An entity shall not reclassify any financial liability. 4.4.3 The following changes in circumstances are not reclassifications for the purposes of .....

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entity shall measure a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.] 5.1.1A However, if the fair value of the financial asset or financial liability at initial recognition differs from the transaction price, an entity shall apply paragraph B5.1.2A. 5. .....

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d AS 115 (or when the entity applies the practical expedient in accordance with paragraph 63 of Ind AS 115).] 5.2 Subsequent measurement of financial assets 5.2.1 After initial recognition, an entity shall measure a financial asset in accordance with paragraphs 4.1.1-4.1.5 at: (a) amortised cost; (b) fair value through other comprehensive income; or (c) fair value through profit or loss. 5.2.2 An entity shall apply the impairment requirements in Section 5.5 to financial assets that are measured .....

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. 5.3.2 An entity shall apply the hedge accounting requirements in paragraphs 6.5.8-6.5.14 to a financial liability that is designated as a hedged item. 5.4 Amortised cost measurement Financial assets Effective interest method 5.4.1 Interest revenue shall be calculated by using the effective interest method (see Appendix A and paragraphs B5.4.1-B5.4.7). This shall be calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for: (a) purchased or .....

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nt reporting periods. 5.4.2 An entity that, in a reporting period, calculates interest revenue by applying the effective interest method to the amortised cost of a financial asset in accordance with paragraph 5.4.1(b), shall, in subsequent reporting periods, calculate the interest revenue by applying the effective interest rate to the gross carrying amount if the credit risk on the financial instrument improves so that the financial asset is no longer credit-impaired and the improvement can be r .....

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set and shall recognise a modification gain or loss in profit or loss. The gross carrying amount of the financial asset shall be 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 purchased or originated credit-impaired financial assets) or, when applicable, the revised effective interest rate calculated in accordance with paragraph 6 .....

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losses General approach 24[5.5.1 An entity shall recognise a loss allowance for expected credit losses on a financial asset that is measured in accordance with paragraphs 4.1.2 or 4.1.2A, a lease receivable, a contract asset or a loan commitment and a financial guarantee contract to which the impairment requirements apply in accordance with paragraphs 2.1(g), 4.2.1(c) or 4.2.1(d).] 5.5.2 An entity shall apply the impairment requirements for the recognition and measurement of a loss allowance for .....

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on that financial instrument has increased significantly since initial recognition. 5.5.4 The objective of the impairment requirements is to recognise lifetime expected credit losses for all for which there have been significant increases in credit risk since initial recognition - whether assessed on an individual or collective basis - considering all reasonable and supportable information, including that which is forward-looking. 5.5.5 Subject to paragraphs 5.5.13-5.5.16, if, at the reporting d .....

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y has measured the loss allowance for a financial instrument at an amount equal to lifetime expected credit losses in the previous reporting period, but determines at the current reporting date that paragraph 5.5.3 is no longer met, the entity shall measure the loss allowance at an amount equal to 12-month expected credit losses at the current reporting date. 5.5.8 An entity shall recognise in profit or loss, as an impairment gain or loss, the amount of expected credit losses (or reversal) that .....

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tead of the change in the amount of expected credit losses. To make that assessment, an entity shall compare the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and consider reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increases in credit risk since initial recognition. 5.5.10 An entity .....

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wever, when information that is more forward-looking than past due status (either on an individual or a collective basis) is not available without undue cost or effort, an entity may use past due information to determine whether there have been significant increases in credit risk since initial recognition. Regardless of the way in which an entity assesses significant increases in credit risk, there is a rebuttable presumption that the credit risk on a financial asset has increased significantly .....

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ents are more than 30 days past due, the rebuttable presumption does not apply. Modified financial assets 5.5.12 If the contractual cash flows on a financial asset have been renegotiated or modified and the financial asset was not derecognised, an entity shall assess whether there has been a significant increase in the credit risk of the financial instrument in accordance with paragraph 5.5.3 by comparing: (a) the risk of a default occurring at the reporting date (based on the modified contractu .....

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gnise in profit or loss the amount of the change in lifetime expected credit losses as an impairment gain or loss. An entity shall recognise favourable changes in lifetime expected credit losses as an impairment gain, even if the lifetime expected credit losses are less than the amount of expected credit losses that were included in the estimated cash flows on initial recognition. Simplified approach for trade receivables, contract assets and lease receivables 25[5.5.15 Despite paragraphs 5.5.3 .....

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115, if the entity chooses as its accounting policy to measure the loss allowance at an amount equal to lifetime expected credit losses. That accounting policy shall be applied to all such trade receivables or contract assets but may be applied separately to trade receivables and contract assets. (b) lease receivables that result from transactions that are within the scope of Ind AS 17, if the entity chooses as its accounting policy to measure the loss allowance at an amount equal to lifetime ex .....

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determined by evaluating a range of possible outcomes; (b) the time value of money; and (c) reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. 5.5.18 When measuring expected credit losses, an entity need not necessarily identify every possible scenario. However, it shall consider the risk or probability that a credit loss occurs by reflecting the possibility .....

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e entity s contractual ability to demand repayment and cancel the undrawn commitment does not limit the entity s exposure to credit losses to the contractual notice period. For such , and only those , the entity shall measure expected credit losses over the period that the entity is exposed to credit risk and expected credit losses would not be mitigated by credit risk management actions, even if that period extends beyond the maximum contractual period. 5.6 Reclassification of financial assets .....

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ss measurement category, its fair value is measured at the reclassification date. Any gain or loss arising from a difference between the previous amortised cost of the financial asset and fair value is recognised in profit or loss. 5.6.3 If an entity reclassifies a financial asset out of the fair value through profit or loss measurement category and into the amortised cost measurement category, its fair value at the reclassification date becomes its new gross carrying amount. (See paragraph B5.6 .....

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ncome. The effective interest rate and the measurement of expected credit losses are not adjusted as a result of the reclassification. (See paragraph B5.6.1.) 5.6.5 If an entity reclassifies a financial asset out of the fair value through other comprehensive income measurement category and into the amortised cost measurement category, the financial asset is reclassified at its fair value at the reclassification date. However, the cumulative gain or loss previously recognised in other comprehensi .....

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redit losses are not adjusted as a result of the reclassification. (See paragraph B5.6.1.) 5.6.6 If an entity reclassifies a financial asset out of the fair value through profit or loss measurement category and into the fair value through other comprehensive income measurement category, the financial asset continues to be measured at fair value. (See paragraph B5.6.2 for guidance on determining an effective interest rate and a loss allowance at the reclassification date.) 5.6.7 If an entity recl .....

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or financial liability that is measured at fair value shall be recognised in profit or loss unless: (a) it is part of a hedging relationship (see paragraphs 6.5.8- 6.5.14); (b) it is an investment in an equity instrument and the entity has elected to present gains and losses on that investment in other comprehensive income in accordance with paragraph 5.7.5; (c) it is a financial liability designated as at fair value through profit or loss and the entity is required to present the effects of ch .....

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it is probable that the economic benefits associated with the dividend will flow to the entity; and (c) the amount of the dividend can be measured reliably. 5.7.2 A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship (see paragraphs 6.5.8-6.5.14) shall be recognised in profit or loss when the financial asset is derecognised, reclassified in accordance with paragraph 5.6.2, through the amortisation process or in order to recognise impair .....

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3 A gain or loss on financial assets or financial liabilities that are hedged items in a hedging relationship shall be recognised in accordance with paragraphs 6.5.8-6.5.14. 5.7.4 If an entity recognises financial assets using settlement date accounting (see paragraphs 3.1.2, B3.1.3 and B3.1.6), any change in the fair value of the asset to be received during the period between the trade date and the settlement date is not recognised for assets measured at amortised cost. For assets measured at f .....

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equity instrument within the scope of this Standard that is neither held for trading nor contingent consideration recognised by an acquirer in a business combination to which Ind AS103 applies. (See paragraph B5.7.3 for guidance on foreign exchange gains or losses.) 5.7.6 If an entity makes the election in paragraph 5.7.5, it shall recognise in profit or loss dividends from that investment in accordance with paragraph 5.7.1A. Liabilities designated as at fair value through profit or loss 5.7.7 .....

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ted in profit or loss unless the treatment of the effects of changes in the liability s credit risk described in (a) would create or enlarge an accounting mismatch in profit or loss (in which case paragraph 5.7.8 applies). Paragraphs B5.7.5-B5.7.7 and B5.7.10-B5.7.12 provide guidance on determining whether an accounting mismatch would be created or enlarged. 5.7.8 If the requirements in paragraph 5.7.7 would create or enlarge an accounting mismatch in profit or loss, an entity shall present all .....

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ugh other comprehensive income in accordance with paragraph 4.1.2A shall be recognised in other comprehensive income, except for impairment gains or losses (see Section 5.5) and foreign exchange gains and losses (see paragraphs B5.7.2-B5.7.2A), until the financial asset is derecognised or reclassified. When the financial asset is derecognised the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustm .....

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hensive income in accordance with paragraph 4.1.2A, the amounts that are recognised in profit or loss are the same as the amounts that would have been recognised in profit or loss if the financial asset had been measured at amortised cost. Chapter 6 Hedge accounting 6.1 Objective and scope of hedge accounting 6.1.1 The objective of hedge accounting is to represent, in the financial statements, the effect of an entity s risk management activities that use to manage exposures arising from particul .....

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ument and a hedged item in accordance with paragraphs 6.2.1-6.3.7 and B6.2.1-B6.3.25. For hedging relationships that meet the qualifying criteria, an entity shall account for the gain or loss on the hedging instrument and the hedged item in accordance with paragraphs 6.5.1-6.5.14 and B6.5.1-B6.5.28. When the hedged item is a group of items, an entity shall comply with the additional requirements in paragraphs 6.6.1-6.6.6 and B6.6.1-B6.6.16. 6.1.3 [Refer Appendix 1]. 6.2 Hedging instruments Quali .....

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able to changes in the credit risk of that liability is presented in other comprehensive income in accordance with paragraph 5.7.7. For a hedge of foreign currency risk, the foreign currency risk component of a non-derivative financial asset or a non-derivative financial liability may be designated as a hedging instrument provided that it is not an investment in an equity instrument for which an entity has elected to present changes in fair value in other comprehensive income in accordance with .....

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ment only the change in intrinsic value of an option and not the change in its time value (see paragraphs 6.5.15 and B6.5.29-B6.5.33); (b) separating the forward element and the spot element of a forward contract and designating as the hedging instrument only the change in the value of the spot element of a forward contract and not the forward element; similarly, the foreign currency basis spread may be separated and excluded from the designation of a financial instrument as the hedging instrume .....

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ument, any combination of the following (including those circumstances in which the risk or risks arising from some hedging instruments offset those arising from others): (a) derivatives or a proportion of them; and (b) non-derivatives or a proportion of them. 6.2.6 However, a derivative instrument that combines a written option and a purchased option (for example, an interest rate collar) does not qualify as a hedging instrument if it is, in effect, a net written option at the date of designati .....

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in a foreign operation. The hedged item can be: (a) a single item; or (b) a group of items (subject to paragraphs 6.6.1-6.6.6 and B6.6.1-B6.6.16). A hedged item can also be a component of such an item or group of items(see paragraphs 6.3.7 and B6.3.7-B6.3.25). 6.3.2 The hedged item must be reliably measurable. 6.3.3 If a hedged item is a forecast transaction (or a component thereof), that transaction must be highly probable. 6.3.4 An aggregated exposure that is a combination of an exposure that .....

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y assets, liabilities, firm commitments or highly probable forecast transactions with a party external to the reporting entity can be designated as hedged items. Hedge accounting can be applied to transactions between entities in the same group only in the individual or separate financial statements of those entities and not in the consolidated financial statements of the group, except for the consolidated financial statements of an investment entity, as defined in Ind AS110, where transactions .....

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on consolidation in accordance with Ind AS 21 The Effects of Changes in Foreign Exchange Rates. In accordance with Ind AS 21, foreign exchange rate gains and losses on intragroup monetary items are not fully eliminated on consolidation when the intragroup monetary item is transacted between two group entities that have different functional currencies. In addition, the foreign currency risk of a highly probable forecast intragroup transaction may qualify as a hedged item in consolidated financial .....

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fair value change or cash flow variability of an item. In that case, an entity may designate only the following types of components (including combinations) as hedged items: (a) only changes in the cash flows or fair value of an item attributable to a specific risk or risks (risk component), provided that, based on an assessment within the context of the particular market structure, the risk component is separately identifiable and reliably measurable (see paragraphs B6.3.8-B6.3.15). Risk compon .....

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elationship consists only of eligible hedging instruments and eligible hedged items. (b) at the inception of the hedging relationship there is formal designation and documentation of the hedging relationship and the entity s risk management objective and strategy for undertaking the hedge. That documentation shall include identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the entity will assess whether the hedging relationship meets the hedge e .....

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edge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the entity actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged item. However, that designation shall not reflect an imbalance between the weightings of the hedged item and the hedging instrument that would create hedge ineffectiveness (irrespective of whether recognised or not) that could result in an accounting outco .....

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ability or an unrecognised firm commitment, or a component of any such item, that is attributable to a particular risk and could affect profit or loss. (b) cash flow hedge: a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with all, or a component of, a recognised asset or liability (such as all or some future interest payments on variable-rate debt) or a highly probable forecast transaction, and could affect profit or loss. (c) hedge of a .....

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n currency risk of a firm commitment may be accounted for as a fair value hedge or a cash flow hedge. 6.5.5 If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio (see paragraph 6.4.1(c)(iii)) but the risk management objective for that designated hedging relationship remains the same, an entity shall adjust the hedge ratio of the hedging relationship so that it meets the qualifying criteria again (this is referred to in this Standard as rebalanci .....

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is not an expiration or termination if such a replacement or rollover is part of, and consistent with, the entity s documented risk management objective. Additionally, for this purpose there is not an expiration or termination of the hedging instrument if: (a) as a consequence of laws or regulations or the introduction of laws or regulations, the parties to the hedging instrument agree that one or more clearing counterparties replace their original counterparty to become the new counterparty to .....

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rties the requirement in this subparagraph is met only if each of those parties effects clearing with the same central counterparty. (b) other changes, if any, to the hedging instrument are limited to those that are necessary to effect such a replacement of the counterparty. Such changes are limited to those that are consistent with the terms that would be expected if the hedging instrument were originally cleared with the clearing counterparty. These changes include changes in the collateral re .....

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(b) paragraph 6.5.12 when it discontinues hedge accounting for cash flow hedges. Fair value hedges 6.5.8 As long as a fair value hedge meets the qualifying criteria in paragraph 6.4.1, the hedging relationship shall be accounted for as follows: (a) the gain or loss on the hedging instrument shall be recognised in profit or loss (or other comprehensive income, if the hedging instrument hedges an equity instrument for which an entity has elected to present changes in fair value in other comprehen .....

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ment for which an entity has elected to present changes in fair value in other comprehensive income in accordance with paragraph 5.7.5, those amounts shall remain in other comprehensive income. When a hedged item is an unrecognised firm commitment (or a component thereof), the cumulative change in the fair value of the hedged item subsequent to its designation is recognised as an asset or a liability with a corresponding gain or loss recognised in profit or loss. 6.5.9 When a hedged item in a fa .....

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of) measured at amortised cost. Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for hedging gains and losses. The amortisation is based on a recalculated effective interest rate at the date that amortisation begins. In the case of a financial asset (or a component thereof) that is a hedged item and that is measured at fair value through other comprehensive income in accordance with paragraph 4.1.2A, amortisation appl .....

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te amounts): (i) the cumulative gain or loss on the hedging instrument from inception of the hedge; and (ii) the cumulative change in fair value (present value) of the hedged item (ie the present value of the cumulative change in the hedged expected future cash flows) from inception of the hedge. (b) the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge (ie the portion that is offset by the change in the cash flow hedge reserve calculated in accord .....

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the recognition of a non-financial asset or non-financial liability, or a hedged forecast transaction for a nonfinancial asset or a non-financial liability becomes a firm commitment for which fair value hedge accounting is applied, the entity shall remove that amount from the cash flow hedge reserve and include it directly in the initial cost or other carrying amount of the asset or the liability. This is not a reclassification adjustment (see Ind AS 1) and hence it does not affect other compre .....

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r a portion of that loss will not be recovered in one or more future periods, it shall immediately reclassify the amount that is not expected to be recovered into profit or loss as a reclassification adjustment (see Ind AS 1). 6.5.12 When an entity discontinues hedge accounting for a cash flow hedge (see paragraphs 6.5.6 and 6.5.7(b)) it shall account for the amount that has been accumulated in the cash flow hedge reserve in accordance with paragraph 6.5.11(a) as follows: (a) if the hedged futur .....

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hly probable to occur may still be expected to occur. Hedges of a net investment in a foreign operation 6.5.13 Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment (see Ind AS 21), shall be accounted for similarly to cash flow hedges: (a) the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge shall be recognised in other comprehensive income (see paragraph 6.5.11) .....

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ns 6.5.15 When an entity separates the intrinsic value and time value of an option contract and designates as the hedging instrument only the change in intrinsic value of the option (see paragraph 6.2.4(a)), it shall account for the time value of the option as follows (see paragraphs B6.5.29- B6.5.33): (a) an entity shall distinguish the time value of options by the type of hedged item that the option hedges (see paragraph B6.5.29): (i) a transaction related hedged item; or (ii) a time-period re .....

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uently results in the recognition of a non-financial asset or a non-financial liability, or a firm commitment for a non-financial asset or a non-financial liability for which fair value hedge accounting is applied, the entity shall remove the amount from the separate component of equity and include it directly in the initial cost or other carrying amount of the asset or the liability. This is not a reclassification adjustment (see Ind AS 1) and hence does not affect other comprehensive income. ( .....

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covered shall be immediately reclassified into profit or loss as a reclassification adjustment (see Ind AS 1). (c) the change in fair value of the time value of an option that hedges a time-period related hedged item shall be recognised in other comprehensive income to the extent that it relates to the hedged item and shall be accumulated in a separate component of equity. The time value at the date of designation of the option as a hedging instrument, to the extent that it relates to the hedged .....

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rofit or loss as a reclassification adjustment (see Ind AS 1). However, if hedge accounting is discontinued for the hedging relationship that includes the change in intrinsic value of the option as the hedging instrument, the net amount (ie including cumulative amortisation) that has been accumulated in the separate component of equity shall be immediately reclassified into profit or loss as a reclassification adjustment (see Ind AS 1). Accounting for the forward element of forward contracts and .....

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rward element of the forward contract or to the foreign currency basis spread in the same manner as it is applied to the time value of an option. In that case, the entity shall apply the application guidance in paragraphs B6.5.34-B6.5.39. 6.6 Hedges of a group of items Eligibility of a group of items as the hedged item 6.6.1 A group of items (including a group of items that constitute a net position; see paragraphs B6.6.1-B6.6.8) is an eligible hedged item only if: (a) it consists of items (incl .....

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pecifies the reporting period in which the forecast transactions are expected to affect profit or loss, as well as their nature and volume (see paragraphs B6.6.7-B6.6.8). Designation of a component of a nominal amount 6.6.2 A component that is a proportion of an eligible group of items is an eligible hedged item provided that designation is consistent with the entity s risk management objective. 6.6.3 A layer component of an overall group of items (for example, a bottom layer) is eligible for he .....

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nised asset) an entity can identify and track the overall group of items from which the hedged layer is defined (so that the entity is able to comply with the requirements for the accounting for qualifying hedging relationships); and (e) any items in the group that contain prepayment options meet the requirements for components of a nominal amount (see paragraph B6.3.20). Presentation 6.6.4 For a hedge of a group of items with offsetting risk positions (ie in a hedge of a net position) whose hed .....

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assets and liabilities shall be recognised as an adjustment of the carrying amount of the respective individual items comprising the group in accordance with paragraph 6.5.8(b). Nil net positions 6.6.6 When the hedged item is a group that is a nil net position (ie the hedged items among themselves fully offset the risk that is managed on a group basis), an entity is permitted to designate it in a hedging relationship that does not include a hedging instrument, provided that: (a) the hedge is par .....

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position is not nil and it is hedged with eligible hedging instruments; and (d) not applying hedge accounting to the nil net position would give rise to inconsistent accounting outcomes, because the accounting would not recognise the offsetting risk positions that would otherwise be recognised in a hedge of a net position. 6.7 Option to designate a credit exposure as measured at fair value through profit or loss Eligibility of credit exposures for designation at fair value through profit or loss .....

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tive ( name matching ); and (b) the seniority of the financial instrument matches that of the instruments that can be delivered in accordance with the credit derivative. An entity may make this designation irrespective of whether the financial instrument that is managed for credit risk is within the scope of this Standard (for example, an entity may designate loan commitments that are outside the scope of this Standard). The entity may designate that financial instrument at, or subsequent to, in .....

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cognised in profit or loss. For financial assets measured at fair value through other comprehensive income in accordance with paragraph 4.1.2A, the cumulative gain or loss previously recognised in other comprehensive income shall immediately be reclassified from equity to profit or loss as a reclassification adjustment (see Ind AS 1). 6.7.3 An entity shall discontinue measuring the financial instrument that gave rise to the credit risk, or a proportion of that financial instrument, at fair value .....

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ts imposed on an entity; and (b) the financial instrument that gives rise to the credit risk is not otherwise required to be measured at fair value through profit or loss (ie the entity s business model has not changed in the meantime so that a reclassification in accordance with paragraph 4.4.1 was required). 6.7.4 When an entity discontinues measuring the financial instrument that gives rise to the credit risk, or a proportion of that financial instrument, at fair value through profit or loss, .....

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ed based on its new gross carrying amount on the date of discontinuing measurement at fair value through profit or loss. 26[Chapter 7 Effective date and transition Effective Date (Section 7.1) 7.1.1 * 7.1.2 * 7.1.3 * 7.1.4 As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers, paragraphs 2.1, 2.2, 4.2.1, 5.1.1, 5.5.1, 5.5.15, Appendix A and Appendix B were amended. Paragraph 5.1.3 and a definition in Appendix A are added. An entity shall apply those amendments when it .....

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inus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance. 27[contract assets Those rights that Ind AS 115, Revenue from Contracts with Customers, specifies are accounted for in accordance with this Standard for the purposes of recognising and measuring impairment gains or losses.] Credit impaired financial asset A fin .....

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ial difficulty, having granted to the borrower a concession (s) that the lender (s) would not otherwise consider; (d)it is becoming probable that the borrower will Enter bankruptcy or other financial reorganisation; (e)the disappearance of an active market for that Financial asset because of financial difficulties; or (f) the purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses. It may not be possible to identify a single discrete event-instead .....

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onsidering all contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) through the expected life of that financial instrument. The cash flows that are considered shall include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms. There is a presumption that the expected life of a financial instrument can be estimated reliably. However, in those rare cases when it is not possible to .....

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estimate the expected cash flows by considering all contractual terms of the financial asset (for example ,prepayment, extension, call and similar options) and expected credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate (see paragraphs B5.4.1 - B5.4.3),transaction costs, and all other premiums or discounts. There is a presumption that the cash flows and the expected life of a group .....

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he scope of this Standard with all three of the Following characteristics. (a)its value changes in response to the change in a Specified interest rate, financial instrument price, Commodity price, foreign exchange rate, index of prices or rates ,credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract (sometimes called the underlying ). (b)it requires no initial net investment or an initial Net .....

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ty 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 contract that are an integral par .....

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up of ). expected credit losses The weighted average of credit losses with the respective risks of a default occurring as the weights. financial guarantee contract A contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. financial liability at fair value through profit or loss A financial liability that meets one of t .....

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or dates. forecast An uncommitted but anticipated future transaction. transaction gross carrying amount of a financial asset The amortised cost of a financial asset, before adjusting for any loss allowance. a designated derivative or (for a hedge of the risk of changes in foreign currency exchange rates only) a designated non-derivative financial asset or non-derivative financial liability whose fair value or cash flows are expected to offset changes in the fair value or cash flows of a designa .....

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n of short-term profit-taking; or (c) is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument). impairment gain or loss lifetime expected credit losses Gains or losses that are recognised in profit or loss in Accordance with paragraph 5.5.8 and that arise from applying the impairment requirements in Section 5.5. The expected credit losses that result from all possible default events over the expected life of a financial ins .....

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ted or modified contractual cash flows. The entity recalculates the gross carrying amount of a financial asset as the present value of the estimated future cash payments or receipts through the expected life of there negotiated or modified financial asset that are discounted at the financial asset s original effective interest rate (or the original credit-adjusted effective interest rate for purchased or originated credit-impaired financial assets) or, when applicable, the revised effective inte .....

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the original credit adjusted effective interest rate. past due A financial asset is past due when a counterparty has failed to make a payment when that payment was contractually due. purchased or originated credit-impaired financial asset Purchased or originated financial asset(s) that are credit impaired on initial recognition. reclassification date The first day of the first reporting period following the change in business model that results in an entity reclassifying financial assets. regula .....

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disposed of the financial instrument. 28[The following terms are defined in paragraph 11 of Ind AS 32, Appendix A of Ind AS 107, Appendix A of Ind AS 113 or Appendix A of Ind AS 115 and are used in this Standard with the meanings specified in Ind AS 32, Ind AS 107, Ind AS 113 or Ind AS 115: (a) credit risk;1 (b) equity instrument; (c) fair value; (d) financial asset; (e) financial instrument; (f) financial liability; (g) transaction price.] 1 This term (as defined in Ind AS 107) is used in the .....

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surance Contracts, they are within the scope of this Standard. 29[B2.2 This Standard does not change the requirements relating to royalty agreements based on the volume of sales or service revenues that are accounted for under Ind AS 115, Revenue from Contracts with Customers.] B2.3 Sometimes, an entity makes what it views as a strategic investment in equity instruments issued by another entity, with the intention of establishing or maintaining a long-term operating relationship with the entity .....

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l forms, such as a guarantee, some types of letter of credit, a credit default contract or an insurance contract. Their accounting treatment does not depend on their legal form. The following are examples of the appropriate treatment (see paragraph 2.1(e)): (a) Although a financial guarantee contract meets the definition of an insurance contract in Ind AS104 if the risk transferred is significant, the issuer applies this Standard. Nevertheless, if the issuer has previously asserted explicitly th .....

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ly to equal the premium received, unless there is evidence to the contrary. Subsequently, unless the financial guarantee contract was designated at inception as at fair value through profit or loss or unless paragraphs 3.2.15-3.2.23 and B3.2.12-B3.2.17 apply (when a transfer of a financial asset does not qualify for derecognition or the continuing involvement approach applies), the issuer measures it at the higher of: (i) the amount determined in accordance with Section 5.5; and 30[(ii) the amou .....

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credit index. Such guarantees are not financial guarantee contracts as defined in this Standard, and are not insurance contracts as defined in Ind AS104. Such guarantees are derivatives and the issuer applies this Standard to them. 31[(c) If a financial guarantee contract was issued in connection with the sale of goods, the issuer applies Ind AS 115 in determining when it recognises the revenue from the guarantee and from the sale of goods.] B2.6 Assertions that an issuer regards contracts as in .....

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uirements. Recognition and derecognition (Chapter 3) Initial recognition (Section 3.1) B3.1.1 As a consequence of the principle in paragraph 3.1.1, an entity recognises all of its contractual rights and obligations under derivatives in its balance sheet as assets and liabilities, respectively, except for derivatives that prevent a transfer of financial assets from being accounted for as a sale (see paragraph B3.2.14). If a transfer of a financial asset does not qualify for derecognition, the tra .....

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or services are generally not recognised until at least one of the parties has performed under the agreement. For example, an entity that receives a firm order does not generally recognise an asset (and the entity that places the order does not recognise a liability) at the time of the commitment but, instead, delays recognition until the ordered goods or services have been shipped, delivered or rendered. If a firm commitment to buy or sell non-financial items is within the scope of this Standa .....

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ndard (see paragraph 2.1) is recognised as an asset or a liability on the commitment date, instead of on the date on which settlement takes place. When an entity becomes a party to a forward contract, the fair values of the right and obligation are often equal, so that the net fair value of the forward is zero. If the net fair value of the right and obligation is not zero, the contract is recognised as an asset or liability. (d) Option contracts that are within the scope of this Standard (see pa .....

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ll apply the same method consistently for all purchases and sales of financial assets that are classified in the same way in accordance with this Standard. For this purpose assets that are mandatorily measured at fair value through profit or loss form a separate classification from assets designated as measured at fair value through profit or loss. In addition, investments in equity instruments accounted for using the option provided in paragraph 5.7.5 form a separate classification. B3.1.4 A co .....

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hat is sold, recognition of any gain or loss on disposal and the recognition of a receivable from the buyer for payment on the trade date. Generally, interest does not start to accrue on the asset and corresponding liability until the settlement date when title passes. B3.1.6 The settlement date is the date that an asset is delivered to or by an entity. Settlement date accounting refers to (a) the recognition of an asset on the day it is received by the entity, and (b) the derecognition of an as .....

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ial assets measured at fair value through profit or loss; and it is recognised in other comprehensive income for financial assets measured at fair value through other comprehensive income in accordance with paragraph 4.1.2A and for investments in equity instruments accounted for in accordance with paragraph 5.7.5. Derecognition of financial assets (Section 3.2) 32[B3.2.1 The following flow chart illustrates the evaluation of whether and to what extent a financial asset is derecognised.] Arrangem .....

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ssues to investors beneficial interests in the underlying financial assets that it owns and provides servicing of those financial assets. In that case, the financial assets qualify for derecognition if the conditions in paragraphs 3.2.5 and 3.2.6 are met. B3.2.3 In applying paragraph 3.2.5, the entity could be, for example, the originator of the financial asset, or it could be a group that includes a subsidiary that has acquired the financial asset and passes on cash flows to unrelated third par .....

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that is so far out of the money it is highly unlikely to go into the money before expiry). B3.2.5 Examples of when an entity has retained substantially all the risks and rewards of ownership are: (a) a sale and repurchase transaction where the repurchase price is a fixed price or the sale price plus a lender s return; (b) a securities lending agreement; (c) a sale of a financial asset together with a total return swap that transfers the market risk exposure back to the entity; (d) a sale of a f .....

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gnise the transferred asset again in a future period, unless it reacquires the transferred asset in a new transaction. Evaluation of the transfer of control B3.2.7 An entity has not retained control of a transferred asset if the transferee has the practical ability to sell the transferred asset. An entity has retained control of a transferred asset if the transferee does not have the practical ability to sell the transferred asset. A transferee has the practical ability to sell the transferred a .....

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transferred asset if the entity retains such an option and the transferee cannot readily obtain the transferred asset in the market if the entity exercises its option. B3.2.8 The transferee has the practical ability to sell the transferred asset only if the transferee can sell the transferred asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally and without imposing additional restrictions on the transfer. The critical question is what the transfere .....

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e transferred asset must be independent of the actions of others (ie it must be a unilateral ability), and (ii) the transferee must be able to dispose of the transferred asset without needing to attach restrictive conditions or strings to the transfer (eg conditions about how a loan asset is serviced or an option giving the transferee the right to repurchase the asset). B3.2.9 That the transferee is unlikely to sell the transferred asset does not, of itself, mean that the transferor has retained .....

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the transferee would hold the transferred asset so as to obtain payments under the guarantee or put option. Under these circumstances the transferor has retained control of the transferred asset. Transfers that qualify for derecognition B3.2.10 An entity may retain the right to a part of the interest payments on transferred assets as compensation for servicing those assets. The part of the interest payments that the entity would give up upon termination or transfer of the servicing contract is .....

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unt of the receivable between the part of the asset that is derecognised and the part that continues to be recognised. If there is no servicing fee specified or the fee to be received is not expected to compensate the entity adequately for performing the servicing, a liability for the servicing obligation is recognised at fair value. B3.2.11 When measuring the fair values of the part that continues to be recognised and the part that is derecognised for the purposes of applying paragraph 3.2.13, .....

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asset, the transferred asset continues to be recognised in its entirety and the consideration received is recognised as a liability. Continuing involvement in transferred assets B3.2.13 The following are examples of how an entity measures a transferred asset and the associated liability under paragraph 3.2.16. All assets 33[(a) If a guarantee provided by an entity to pay for default losses on a transferred asset prevents the transferred asset from being derecognised to the extent of the continui .....

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e is recognised in profit or loss when (or as) the obligation is satisfied (in accordance with the principles of Ind AS 115) and the carrying value of the asset is reduced by any loss allowance.] Assets measured at amortised cost (b) If a put option obligation written by an entity or call option right held by an entity prevents a transferred asset from being derecognised and the entity measures the transferred asset at amortised cost, the associated liability is measured at its cost (ie the cons .....

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e difference between ₹ 95 and ₹ 100 is recognised in profit or loss using the effective interest method. If the option is exercised, any difference between the carrying amount of the associated liability and the exercise price is recognised in profit or loss. Assets measured at fair value (c) If a call option right retained by an entity prevents a transferred asset from being derecognised and the entity measures the transferred asset at fair value, the asset continues to be measured .....

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underlying asset is ₹ 80, the option exercise price is ₹ 95 and the time value of the option is ₹ 5, the carrying amount of the associated liability is ₹ 75 (Rs.80 - ₹ 5) and the carrying amount of the transferred asset is ₹ 80 (ie its fair value). (d) If a put option written by an entity prevents a transferred asset from being derecognised and the entity measures the transferred asset at fair value, the associated liability is measured at the option exercise .....

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ercise price is ₹ 100 and the time value of the option is ₹ 5, the carrying amount of the associated liability is ₹ 105 (Rs.100 + ₹ 5) and the carrying amount of the asset is ₹ 100 (in this case the option exercise price). (e) If a collar, in the form of a purchased call and written put, prevents a transferred asset from being derecognised and the entity measures the asset at fair value, it continues to measure the asset at fair value. The associated liability is me .....

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y the entity. For example, assume an entity transfers a financial asset that is measured at fair value while simultaneously purchasing a call with an exercise price of ₹ 120 and writing a put with an exercise price of ₹ 80. Assume also that the fair value of the asset is ₹ 100 at the date of the transfer. The time value of the put and call are ₹ 1 and ₹ 5 respectively. In this case, the entity recognises an asset of ₹ 100 (the fair value of the asset) and a li .....

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om the transfer would result in recognising the same rights or obligations twice. For example, a call option retained by the transferor may prevent a transfer of financial assets from being accounted for as a sale. In that case, the call option is not separately recognised as a derivative asset. B3.2.15 To the extent that a transfer of a financial asset does not qualify for derecognition, the transferee does not recognise the transferred asset as its asset. The transferee derecognises the cash o .....

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ies lending. If a financial asset is sold under an agreement to repurchase it at a fixed price or at the sale price plus a lender s return or if it is loaned under an agreement to return it to the transferor, it is not derecognised because the transferor retains substantially all the risks and rewards of ownership. If the transferee obtains the right to sell or pledge the asset, the transferor reclassifies the asset in its statement of balance sheet, for example, as a loaned asset or repurchase .....

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ership. (c) Repurchase agreements and securities lending-right of substitution. If are purchase agreement at a fixed repurchase price or a price equal to the sale price plus a lender s return, or a similar securities lending transaction, provides the transferee with a right to substitute assets that are similar and of equal fair value to the transferred asset at the repurchase date, the asset sold or lent under a repurchase or securities lending transaction is not derecognised because the transf .....

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sometimes referred to as a wash sale. Such a repurchase does not preclude derecognition provided that the original transaction met the derecognition requirements. However, if an agreement to sell a financial asset is entered into concurrently with an agreement to repurchase the same asset at a fixed price or the sale price plus a lender s return, then the asset is not derecognised. (f) Put options and call options that are deeply in the money. If a transferred financial asset can be called back .....

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t of the money. A financial assetthat is transferred subject only to a deep out-of-the-money put option held by the transferee or a deep out-of-the-money call option held by the transferor is derecognised. This is because the transferor has transferred substantially all the risks and rewards of ownership. (h) Readily obtainable assets subject to a call option that is neither deeply in the money nor deeply out of the money. If an entity holds a call option on an asset thatis readily obtainable in .....

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readily obtainable asset subject to a put option written by an entity that is neither deeply in the money nor deeply out of the money. If an entity transfers a financial asset that is not readily obtainable in the market, and writes a put option that is not deeply out of the money, the entity neither retains nor transfers substantially all the risks and rewards of ownership because of the written put option. The entity retains control of the asset if the put option is sufficiently valuable to p .....

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to a put or call option or a forward repurchase agreement that has an exercise or repurchase price equal to the fair value of the financial asset at the time of repurchase results in derecognition because of the transfer of substantially all the risks and rewards of ownership. (k) Cash-settled call or put options. An entity evaluates the transfer of a financial asset that is subject to a put or call option or a forward repurchase agreement that will be settled net in cash to determine whether it .....

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on. A removal of accounts provision is anunconditional repurchase (call) option that gives an entity the right to reclaim assets transferred subject to some restrictions. Provided that such an option results in the entity neither retaining nor transferring substantially all the risks and rewards of ownership, it precludes derecognition only to the extent of the amount subject to repurchase (assuming that the transferee cannot sell the assets). For example, if the carrying amount and proceeds fro .....

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g those assets becomes burdensome in relation to the benefits of servicing. Provided that such a clean-up call results in the entity neither retaining nor transferring substantially all the risks and rewards of ownership and the transferee cannot sell the assets, it precludes derecognition only to the extent of the amount of the assets that is subject to the call option. (n) Subordinated retained interests and credit guarantees. An entity may provide the transferee with credit enhancement by sub .....

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tained control, derecognition is precluded to the extent of the amount of cash or other assets that the entity could be required to pay. (o) Total return swaps. An entity may sell a financial asset to a transferee and enter into a total return swap with the transferee, whereby all of the interest payment cash flows from the underlying asset are remitted to the entity in exchange for a fixed payment or variable rate payment and any increases or declines in the fair value of the underlying asset a .....

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e payments on the swap are not conditional on payments being made on the transferred asset. (q) Amortising interest rate swaps. An entity may transfer to a transferee a fixed rate financial asset that is paid off over time, and enter into an amortising interest rate swap with the transferee to receive a fixed interest rate and pay a variable interest rate based on a notional amount. If the notional amount of the swap amortises so that it equals the principal amount of the transferred financial a .....

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payment risk on the asset. Hence, it would not preclude derecognition of the transferred asset provided the payments on the swap are not conditional on interest payments being made on the transferred asset and the swap does not result in the entity retaining any other significant risks and rewards of ownership on the transferred asset. (r) Write-off. An entity has no reasonable expectations of recovering the contractual cash flows on a financial asset in its entirety or a portion thereof. B3.2.1 .....

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us interest thereon at 9.5 per cent. The entity retains rights to ₹ 1,000 of any collections of principal plus interest thereon at 10 per cent, plus the excess spread of 0.5 per cent on the remaining ₹ 9,000 of principal. Collections from prepayments are allocated between the entity and the transferee proportionately in the ratio of 1:9, but any defaults are deducted from the entity s interest of ₹ 1,000 until that interest is exhausted. The fair value of the loans at the date .....

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action as (a) a retention of a fully proportionate retained interest of ₹ 1,000, plus (b) the subordination of that retained interest to provide credit enhancement to the transferee for credit losses. The entity calculates that ₹ 9,090 (90% × ₹ 10,100) of the consideration received of ₹ 9,115 represents the consideration for a fully proportionate 90 per cent share. The remainder of the consideration received (Rs.25) represents consideration received for subordinatin .....

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ined are not available at the date of the transfer, the entity allocates the carrying amount of the asset in accordance with paragraph 3.2.14 of Ind AS109 as follows: Allocated carrying Fair value Percentage amount Portion transferred 9,090 90% 9,000 Portion retained 1,010 10% 1,000 Total 10,100 10,000 The entity computes its gain or loss on the sale of the 90 per cent share of the cash flows by deducting the allocated carrying amount of the portion transferred from the consideration received, i .....

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ive under the subordination, ieRs.1,000 plus the fair value of the subordination of ₹ 65). The entity uses all of the above information to account for the transaction as follows: Debit Credit Original asset 9,000 Asset recognised for subordination or the residual interest 1,000 Asset for the consideration received in the form of excess spread 40 Profit or loss (gain on transfer) 90 Liability 1,065 Cash received 9,115 Total 10,155 10,155 Immediately following the transaction, the carrying a .....

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effective interest method and recognises any impairment losses on the recognised assets. As an example of the latter, assume that in the following year there is an impairment loss on the underlying loans of ₹ 300. The entity reduces its recognised asset by ₹ 600 (Rs.300 relating to its retained interest and ₹ 300 relating to the additional continuing involvement that arises from the subordination of its retained interest for impairment losses), and reduces its recognised liabil .....

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ditor. (If the debtor has given a guarantee this condition may still be met.) B3.3.2 If an issuer of a debt instrument repurchases that instrument, the debt is extinguished even if the issuer is a market maker in that instrument or intends to resell it in the near term. B3.3.3 Payment to a third party, including a trust (sometimes called in-substance defeasance ), does not, by itself, relieve the debtor of its primary obligation to the creditor, in the absence of legal release. B3.3.4 If a debto .....

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gnises a new debt obligation to the third party. B3.3.5 Although legal release, whether judicially or by the creditor, results in derecognition of a liability, the entity may recognise a new liability if the derecognition criteria in paragraphs 3.2.1-3.2.23 are not met for the financial assets transferred. If those criteria are not met, the transferred assets are not derecognised, and the entity recognises a new liability relating to the transferred assets. B3.3.6 For the purpose of paragraph 3. .....

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art of the gain or loss on the extinguishment. If the exchange or modification is not accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term of the modified liability. B3.3.7 In some cases, a creditor releases a debtor from its present obligation to make payments, but the debtor assumes a guarantee obligation to pay if the party assuming primary responsibility defaults. In these circumstances the debtor .....

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financial assets on the basis of the entity s business model for managing the financial assets, unless paragraph 4.1.5 applies. An entity assesses whether its financial assets meet the condition in paragraph 4.1.2(a) or the condition in paragraph 4.1.2A(a) on the basis of the business model as determined by the entity s key management personnel (as defined in Ind AS 24 Related Party Disclosures). B4.1.2 An entity s business model is determined at a level that reflects how groups of financial ass .....

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entity may hold a portfolio of investments that it manages in order to collect contractual cash flows and another portfolio of investments that it manages in order to trade to realise fair value changes. Similarly, in some circumstances, it may be appropriate to separate a portfolio of financial assets into sub portfolios in order to reflect the level at which an entity manages those financial assets. For example, that may be the case if an entity originates or purchases a portfolio of mortgage .....

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that the entity does not reasonably expect to occur, such as so called worst case or stress case scenarios. For example, if an entity expects that it will sell a particular portfolio of financial assets only in a stress case scenario, that scenario would not affect the entity s assessment of the business model for those assets if the entity reasonably expects that such a scenario will not occur. If cash flows are realised in a way that is different from the entity s expectations at the date tha .....

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ong as the entity considered all relevant information that was available at the time that it made the business model assessment. However, when an entity assesses the business model for newly originated or newly purchased financial assets, it must consider information about how cash flows were realised in the past, along with all other relevant information. B4.1.2B An entity s business model for managing financial assets is a matter of fact and not merely an assertion. It is typically observable .....

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ts held within that business model are evaluated and reported to the entity s key management personnel; (b) the risks that affect the performance of the business model (and the financial assets held within that business model) and, in particular, the way in which those risks are managed; and (c) how managers of the business are compensated (for example, whether the compensation is based on the fair value of the assets managed or on the contractual cash flows collected). A business model whose ob .....

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and selling assets). In determining whether cash flows are going to be realised by collecting the financial assets contractual cash flows, it is necessary to consider the frequency, value and timing of sales in prior periods, the reasons for those sales and expectations about future sales activity. However sales in themselves do not determine the business model and therefore cannot be considered in isolation. Instead, information about past sales and expectations about future sales provide evide .....

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instruments until maturity. Thus an entity s business model can be to hold financial assets to collect contractual cash flows even when sales of financial assets occur or are expected to occur in the future. B4.1.3A The business model may be to hold assets to collect contractual cash flows even if the entity sells financial assets when there is an increase in the assets credit risk. To determine whether there has been an increase in the assets credit risk, the entity considers reasonable and sup .....

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ioration are integral to such a business model. Selling a financial asset because it no longer meets the credit criteria specified in the entity s documented investment policy is an example of a sale that has occurred due to an increase in credit risk. However, in the absence of such a policy, the entity may demonstrate in other ways that the sale occurred due to an increase in credit risk. B4.1.3B Sales that occur for other reasons, such as sales made to manage credit concentration risk (withou .....

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ber of such sales are made out of a portfolio and those sales are more than insignificant in value (either individually or in aggregate), the entity needs to assess whether and how such sales are consistent with an objective of collecting contractual cash flows. Whether a third party imposes the requirement to sell the financial assets, or that activity is at the entity s discretion, is not relevant to this assessment. An increase in the frequency or value of sales in a particular period is not .....

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ection of the remaining contractual cash flows. B4.1.4 The following are examples of when the objective of an entity s business model may be to hold financial assets to collect the contractual cash flows. This list of examples is not exhaustive. Furthermore, the examples are not intended to discuss all factors that may be relevant to the assessment of the entity s business model nor specify the relative importance of the factors. Example Analysis An entity holds investments to collect their cont .....

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have occurred as a result of unanticipated funding needs. Reports to key management personnel focus on the credit quality of the financial assets and the contractual return. The entity also monitors fair values of the financial assets, among other information. Although the entity considers, among other information, the financial assets fair values from a liquidity perspective (ie the cash amount that would be realised if the entity needs to sell assets), the entity s objective is to hold the fin .....

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l is to purchase portfolios of financial assets, such as loans. Those portfolios may or may not include financial assets that are credit impaired. If payment on the loans is not made on a timely basis, the entity attempts to realise the contractual cash flows through various means-for example, by contacting the debtor by mail, telephone or other methods. The entity s objective is to collect the contractual cash flows and the entity does not manage any of the loans in this portfolio with an objec .....

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cial assets are credit impaired at initial recognition). Moreover, the fact that the entity enters into derivatives to modify the cash flows of the portfolio does not in itself change the entity s business model Example 3 An entity has a business model with the objective of originating loans to customers and subsequently selling those loans to a securitisation vehicle. The securitisation vehicle issues instruments to investors. The originating entity controls the securitisation vehicle and thus .....

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alising cash flows on the loan portfolio by selling the loans to the securitisation vehicle, so for the purposes of its separate financial statements it would not be considered to be managing this portfolio in order to collect the contractual cash flows. Example 4 A financial institution holds financial assets to meet liquidity needs in a stress case scenario (eg, a run on the deposits). The entity does not anticipate selling these assets except in such scenarios The entity monitors the credit q .....

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ity s liquidity needs. Periodically, the entity makes sales that are insignificant in value to demonstrate liquidity. Analysis The objective of the entity s business model is to hold the financial assets to collect contractual cash flows. The analysis would not change even if during a previous stress case scenario the entity had sales that were significant in value in order to meet its liquidity needs. Similarly, recurring sales activity that is insignificant in value is not inconsistent with ho .....

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s sold is significant, the entity s business model is not to hold financial assets to collect contractual cash flows. Whether a third party imposes the requirement to sell the financial assets, or that activity is at the entity s discretion, is not relevant to the analysis. A business model whose objective is achieved by both collecting contractual cash flows and selling financial assets B4.1.4A An entity may hold financial assets in a business model whose objective is achieved by both collectin .....

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profile or to match the duration of the financial assets to the duration of the liabilities that those assets are funding. To achieve such an objective, the entity will both collect contractual cash flows and sell financial assets. B4.1.4B Compared to a business model whose objective is to hold financial assets to collect contractual cash flows, this business model will typically involve greater frequency and value of sales. This is because selling financial assets is integral to achieving the .....

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stive. Furthermore, the examples are not intended to describe all the factors that may be relevant to the assessment of the entity s business model nor specify the relative importance of the factors. Example5 Analysis An entity anticipates capital expenditure in a few years. The entity invests its excess cash in short and long-term financial assets so that it can fund the expenditure when the need arises. Many of the financial assets have contractual lives that exceed the entity s anticipated in .....

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basis about whether collecting contractual cash flows or selling financial assets will maximise the return on the portfolio until the need arises for the invested cash. In contrast, consider an entity that anticipates a cash outflow in five years to fund capital expenditure and invests excess cash in short term financial assets. When the investments mature, the entity reinvests the cash in new short term financial assets. The entity maintains this strategy until the funds are needed, at which t .....

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efore actively manages the return on the portfolio. That return consists of collecting contractual payments as well as gains and losses from the sale of financial assets. As a result, the entity holds financial assets to collect contractual cash flows and sells financial assets to reinvest in higher yielding financial assets or to better match the duration of its liabilities. In the past, this strategy has resulted in frequent sales activity and such sales have been significant in value. This ac .....

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liabilities. The insurer uses the proceeds from the contractual cash flows on the financial assets to settle insurance contract liabilities as they come due. To ensure that the contractual cash flows from the financial assets are sufficient to settle those liabilities, the insurer undertakes significant buying and selling activity on a regular basis to rebalance its portfolio of assets and to meet cash flow needs as they arise. Analysis The objective of the business model isto fund the insurance .....

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o collect contractual cash flows or within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets (but see alsoparagraph 5.7.5). One business model that results in measurement at fair value through profit or loss is one in which an entity manages the financial assets with the objective of realising cash flows through the sale of the assets. The entity makes decisions based on the assets fair values and manages the assets to realise tho .....

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financial assets that is managed and whose performance is evaluated on a fair value basis (as described in paragraph 4.2.2(b)) is neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets. The entity is primarily focused on fair value information and uses that information to assess the assets performance and to make decisions. In addition, a portfolio of financial assets that meets the definition of held for trading is not held t .....

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lassify a financial asset on the basis of its contractual cash flow characteristics if the financial asset is held within a business model whose objective is to hold assets to collect contractual cash flows or within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, unless paragraph 4.1.5 applies. To do so, the condition in paragraphs 4.1.2(b) and 4.1.2A(b) requires an entity to determine whether the asset s contractual cash flow .....

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tion for other basic lending risks (for example, liquidity risk) and costs (for example, administrative costs) associated with holding the financial asset for a particular period of time. In addition, interest can include a profit margin that is consistent with a basic lending arrangement. In extreme economic circumstances, interest can be negative if, for example, the holder of a financial asset either explicitly or implicitly pays for the deposit of its money for a particular period of time (a .....

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riginated or a purchased financial asset can be a basic lending arrangement irrespective of whether it is a loan in its legal form. B4.1.7B In accordance with paragraph 4.1.3(a), principal is the fair value of the financial asset at initial recognition. However that principal amount may change over the life of the financial asset (for example, if there are repayments of principal). B4.1.8 An entity shall assess whether contractual cash flows are solely payments of principal and interest on the p .....

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4.1.2A(b) and cannot be subsequently measured at amortised cost or fair value through other comprehensive income. Consideration for the time value of money B4.1.9A Time value of money is the element of interest that provides consideration for only the passage of time. That is, the time value of money element does not provide consideration for other risks or costs associated with holding the financial asset. In order to assess whether the element provides consideration for only the passage of ti .....

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to a one-year rate) or if a financial asset s interest rate is periodically reset to an average of particular short- and long-term interest rates. In such cases, an entity must assess the modification to determine whether the contractual cash flows represent solely payments of principal and interest on the principal amount outstanding. In some circumstances, the entity may be able to make that determination by performing a qualitative assessment of the time value of money element whereas, in oth .....

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t rate, the entity would compare that financial asset to a financial instrument with identical contractual terms and the identical credit risk except the variable interest rate is reset monthly to aone-month interest rate. If the modified time value of money element could result in contractual (undiscounted) cash flows that are significantly different from the (undiscounted) benchmark cash flows, the financial asset does not meet the condition in paragraphs 4.1.2(b) and 4.1.2A(b). To make this d .....

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n entity need not perform a detailed assessment. B4.1.9D When assessing a modified time value of money element, an entity must consider factors that could affect future contractual cash flows. For example, if an entity is assessing a bond with a five-year term and the variable interest rate is reset every six months to a five-year rate, the entity cannot conclude that the contractual cash flows are solely payments of principal and interest on the principal amount outstanding simply because the i .....

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However, an entity must consider only reasonably possible scenarios instead of every possible scenario. If an entity concludes that the contractual (undiscounted) cash flows could be significantly different from the (undiscounted) benchmark cash flows, the financial asset does not meet the condition in paragraphs 4.1.2(b) and 4.1.2A(b) and therefore cannot be measured at amortised cost or fair value through other comprehensive income. B4.1.9E In some jurisdictions, the government or a regulator .....

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for the purpose of applying the condition in paragraphs 4.1.2(b) and 4.1.2A(b) if that regulated interest rate provides consideration that is broadly consistent with the passage of time and does not provide exposure to risks or volatility in the contractual cash flows that are inconsistent with a basic lending arrangement. Contractual terms that change the timing or amount of contractual cash flows B4.1.10 If a financial asset contains a contractual term that could change the timing or amount of .....

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may also need to assess the nature of any contingent event (ie the trigger) that would change the timing or amount of the contractual cash flows. While the nature of the contingent event in itself is not a determinative factor in assessing whether the contractual cash flows are solely payments of principal and interest, it may be an indicator. For example, compare a financial instrument with an interest rate that is reset to a higher rate if the debtor misses a particular number of payments to .....

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in contractual cash flows that are solely payments of principal and interest on the principal amount outstanding: (a) a variable interest rate that consists of consideration for the time value of money, the credit risk associated with the principal amount outstanding during a particular period of time (the consideration for credit risk may be determined at initial recognition only, and so may be fixed) and other basic lending risks and costs, as well as a profit margin; (b) a contractual term t .....

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strument (ie an extension option) and the terms of the extension option result in contractual cash flows during the extension period that are solely payments of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for the extension of the contract. B4.1.12 Despite paragraph B4.1.10, a financial asset that would otherwise meet the condition in paragraphs 4.1.2(b) and 4.1.2A(b) but does not do so only as a result of a contractual term tha .....

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ntially represents the contractual par amount and accrued (but unpaid) contractual interest, which may include reasonable additional compensation for the early termination of the contract; and (c) when the entity initially recognises the financial asset, the fair value of the prepayment feature is insignificant. B4.1.13 The following examples illustrate contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. This list of examples is not exha .....

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unleveraged inflation index resets the time value of money to a current level. In other words, the interest rate on the instrument reflects real interest. Thus, the interest amounts are consideration for the time value of money on the principal amount outstanding. However, if the interest payments were indexed to another variable such as the debtor s performance(eg the debtor s net income) or an equity index, the contractual cash flows are not payments of principal and interest on the principal .....

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the borrower to choose the market interest rate on an on going basis. For example, at each interest rate reset date, the borrower can choose to pay three-month LIBOR for a three-month term or one-month LIBOR for a one-month term. Analysis The contractual cash flows are solely payments of principal and interest on the principal amount outstanding as long as the interest paid over the life of the instrument reflects consideration for the time value of money, for the credit risk associated with th .....

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. Similarly, if an instrument has a contractual interest rate that is based on a term that can exceed the instrument s remaining life (for example, if an instrument with a five-year maturity pays a variable rate that is reset periodically but always reflects a five-year maturity), the time value of money element is modified. That is because the interest payable in each period is disconnected from the interest period. In such cases, the entity must qualitatively or quantitatively assess the contr .....

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siders the contractual cash flows on an instrument that resets every six months to a six-month interest rate but is otherwise identical. The same analysis would apply if the borrower is able to choose between the lender s various published interest rates (eg the borrower can choose between the lender s published one-month variable interest rate and the lender s published three-month variable interest rate). Instrument C Instrument C is a bond with a stated maturity date and pays a variable marke .....

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profit margin. (See paragraph B4.1.7A) Consequently, an instrument that is a combination of (a) and (b) (eg a bond with an interest rate cap) can have cash flows that are solely payments of principal and interest on the principal amount outstanding. Such a contractual term may reduce cash flow variability by setting a limit on a variable interest rate (eg an interest rate cap or floor) or increase the cash flow variability because a fixed rate becomes variable. Instrument D Instrument D is a ful .....

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at permits or requires a national resolving authority to impose losses on holders of particular instruments, including Instrument E, in particular circumstances. For example, the national resolving authority has the power to write down the par amount of Instrument Eor to convert it into a fixed number of the issuer s ordinary shares if the national resolving authority determines that the issuer is having severe financial difficulties, needs additional regulatory capital or is failing . Analysis .....

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contractual terms of the financial instrument. In contrast, the contractual cash flows would not be solely payments of principal and interest on the principal amount outstanding if the contractual terms of the financial instrument permit or require the issuer or another entity to impose losses on the holder (eg by writing down the paramount or by converting the instrument into a fixed number of the issuer s ordinary shares) as long as those contractual terms are genuine, even if the probability .....

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the principal amount outstanding because they reflect a return that is inconsistent with a basic lending arrangement (see paragraph B4.1.7A);ie the return is linked to the value of the equity of the issuer. Instrument G Instrument G is a loan that pays an inverse floating interest rate (ie the interest rate has an inverse relationship to market interest rates). Analysis The contractual cash flows are not solely payments of principal and interest on the principal amount outstanding. The interest .....

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are not payments of principal and interest on the principal amount outstanding. That is because the issuer may be required to defer interest payment sand additional interest does not accrue on those deferred interest amounts. As a result, interest amounts are not consideration for the time value of money on the principal amount outstanding. If interest accrued on the deferred amounts, the contractual cash flows could be payments of principal and interest on the principal amount outstanding. The .....

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ot mean that the contractual cash flows are not payments of principal and interest on the principal amount outstanding unless it is callable at an amount that does not substantially reflect payment of outstanding principal and interest on that principal amount outstanding. Even if the callable amount includes an amount that reasonably compensates the holder for the early termination of the instrument, the contractual cash flows could be payments of principal and interest on the principal amount .....

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not solely payments of principal and interest on the principal amount outstanding. For example, if the contractual terms stipulate that the financial asset s cash flows increase as more automobiles use a particular toll road, those contractual cash flows are inconsistent with a basic lending arrangement. As a result, the instrument would not satisfy the condition in paragraphs 4.1.2(b) and 4.1.2A(b).This could be the case when a creditor s claim is limited to specified assets of the debtor or th .....

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incipal and interest on the principal amount outstanding. If the terms of the financial asset give rise to any other cash flows or limit the cash flows in a manner inconsistent with payments representing principal and interest, the financial asset does not meet the condition in paragraphs 4.1.2(b) and 4.1.2A(b). Whether the underlying assets are financial assets or non-financial assets does not in itself affect this assessment. B4.1.18 A contractual cash flow characteristic does not affect the c .....

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eriod or cumulatively) but that cash flow characteristic is not genuine, it does not affect the classification of a financial asset. A cash flow characteristic is not genuine if it affects the instrument s contractual cash flows only on the occurrence of an event that is extremely rare, highly abnormal and very unlikely to occur. B4.1.19 In almost every lending transaction the creditor s instrument is ranked relative to the instruments of the debtor s other creditors. An instrument that is subor .....

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e principal amount outstanding. This is the case even if the debtor issued loans that are collateralised, which in the event of bankruptcy would give that loan holder priority over the claims of the general creditor in respect of the collateral but does not affect the contractual right of the general creditor to unpaid principal and other amounts due. Contractually linked instruments B4.1.20 In some types of transactions, an issuer may prioritise payments to the holders of financial assets using .....

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has cash flow characteristics that are payments of principal and interest on the principal amount outstanding only if: (a) the contractual terms of the tranche being assessed for classification (without looking through to the underlying pool of ) give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding (eg the interest rate on the tranche is not linked to a commodity index); (b) the underlying pool of has the cash flow characteristics set ou .....

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t are creating (instead of passing through) the cash flows. This is the underlying pool of . B4.1.23 The underlying pool must contain one or more instruments that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. B4.1.24 The underlying pool of instruments may also include instruments that: (a) reduce the cash flow variability of the instruments in paragraph B4.1.23 and, when combined with the instruments in paragraph B4.1.23, resu .....

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nominated, including inflation in that currency; or (iii) the timing of the cash flows. B4.1.25 If any instrument in the pool does not meet the conditions in either paragraph B4.1.23 or paragraph B4.1.24, the condition in paragraph B4.1.21(b) is not met. In performing this assessment, a detailed instrument-by-instrument analysis of the pool may not be necessary. However, an entity must usejudgement and perform sufficient analysis to determine whether the instruments in the pool meet the conditio .....

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eet the conditions in paragraph B4.1.21 and must be measured at fair value through profit or loss. However, if the underlying pool includes instruments that are collateralised by assets that do not meet the conditions in paragraphs B4.1.23-B4.1.24, the ability to take possession of such assets shall be disregarded for the purposes of applying this paragraph unless the entity acquired the tranche with the intention of controlling the collateral. Option to designate a financial asset or financial .....

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h profit or loss is similar to an accounting policy choice (although, unlike an accounting policy choice, it is not required to be applied consistently to all similar transactions). When an entity has such a choice, paragraph 14(b) of Ind AS 8 requires the chosen policy to result in the financial statements providing reliable and more relevant information about the effects of transactions, other events and conditions on the entity s financial position, financial performance or cash flows. For ex .....

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ancial liability and classification of recognised changes in its value are determined by the item s classification and whether the item is part of a designated hedging relationship. Those requirements can create a measurement or recognition inconsistency (sometimes referred to as an accounting mismatch ) when, for example, in the absence of designation as at fair value through profit or loss, a financial asset would be classified as subsequently measured at fair value through profit or loss and .....

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liabilities as at fair value through profit or loss only if it meets the principle in paragraph 4.1.5 or 4.2.2(a): (a) an entity has liabilities under insurance contracts whose measurement incorporates current information (as permitted by paragraph 24 of Ind AS104) and financial assets that it considers to be related and that would otherwise be measured at either fair value through other comprehensive income or amortised cost. (b) an entity has financial assets, financial liabilities or both th .....

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nancial assets, financial liabilities or both that share a risk, such as interest rate risk, that gives rise to opposite changes in fair value that tend to offset each other and none of the financial assets or financial liabilities qualifies for designation as a hedging instrument because they are not measured at fair value through profit or loss. Furthermore, in the absence of hedge accounting there is a significant inconsistency in the recognition of gains and losses. For example, the entity h .....

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e a bond is repurchased. B4.1.31 In cases such as those described in the preceding paragraph, to designate, at initial recognition, the financial assets and financial liabilities not otherwise so measured as at fair value through profit or loss may eliminate or significantly reduce the measurement or recognition inconsistency and produce more relevant information. For practical purposes, the entity need not enter into all of the assets and liabilities giving rise to the measurement or recognitio .....

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nsistency and would therefore not result in more relevant information. However, it would be acceptable to designate only some of a number of similar financial assets or similar financial liabilities if doing so achieves a significant reduction (and possibly a greater reduction than other allowable designations) in the inconsistency. For example, assume an entity has a number of similar financial liabilities that sum to ₹ 100 and a number of similar financial assets that sum to ₹ 50 b .....

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es in their entirety. It could not designate either a component of a liability (eg changes in value attributable to only one risk, such as changes in a benchmark interest rate) or a proportion (ie percentage) of a liability. A group of financial liabilities or financial assets and financial liabilities is managed and its performance is evaluated on a fair value basis B4.1.33 An entity may manage and evaluate the performance of a group of financial liabilities or financial assets and financial li .....

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or more risks and those risks are managed and evaluated on a fair value basis in accordance with a documented policy of asset and liability management. An example could be an entity that has issued structured products containing multiple embedded derivatives and manages the resulting risks on a fair value basis using a mix of derivative and non-derivative . B4.1.35 As noted above, this condition relies on the way the entity manages and evaluates performance of the group of under consideration. A .....

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ut may be on a portfolio basis. For example, if the performance management system for adepartment-as approved by the entity s key management personnel-clearly demonstrates that its performance is evaluated on this basis, no further documentation is required to demonstrate compliance with paragraph 4.2.2(b). Embedded derivatives (Section 4.3) B4.3.1 When an entity becomes a party to a hybrid contract with a host that is not an asset within the scope of this Standard, paragraph 4.3.3 requires the .....

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bedded derivative would need to possess equity characteristics related to the same entity to be regarded as closely related. If the host contract is not an equity instrument and meets the definition of a financial instrument, then its economic characteristics and risks are those of a debt instrument. B4.3.3 An embedded non-option derivative (such as an embedded forward or swap) is separated from its host contract on the basis of its stated or implied substantive terms, so as to result in it havi .....

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vatives that are classified as equity (see Ind AS 32: Presentation) are accounted for separately from those classified as assets or liabilities. In addition, if a hybrid contract has more than one embedded derivative and those derivatives relate to different risk exposures and are readily separable and independent of each other, they are accounted for separately from each other. B4.3.5 The economic characteristics and risks of an embedded derivative are not closely related to the host contract ( .....

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An option or automatic provision to extend the remaining term to maturity of a debt instrument is not closely related to the host debt instrument unless there is a concurrent adjustment to the approximate current market rate of interest at the time of the extension. If an entity issues a debt instrument and the holder of that debt instrument writes a call option on the debt instrument to a third party, the issuer regards the call option as extending the term to maturity of the debt instrument pr .....

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ed interest or principal payments embedded in a host debt instrument or insurance contract-by which the amount of interest or principal is indexed to the price of a commodity (such as gold)-are not closely related to the host instrument because the risks inherent in the host and the embedded derivative are dissimilar. (e) A call, put, or prepayment option embedded in a host debt contract or host insurance contract is not closely related to the host contract unless: (i) the option s exercise pric .....

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tive interest rate of the host contract over the effective interest rate the entity would receive at the prepayment date if it reinvested the principal amount prepaid in a similar contract for the remaining term of the host contract. The assessment of whether the call or put option is closely related to the host debt contract is made before separating the equity element of a convertible debt instrument in accordance with Ind AS 32. (f) Credit derivatives that are embedded in a host debt instrume .....

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nge for an amount of cash or other financial assets that varies on the basis of the change in an equity or commodity index that may increase or decrease (a puttable instrument ). Unless the issuer on initial recognition designates the puttable instrument as a financial liability at fair value through profit or loss, it is required to separate an embedded derivative (ie the indexed principal payment)under paragraph 4.3.3 because the host contract is a debt instrument under paragraph B4.3.2 and th .....

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, the effect of separating an embedded derivative and accounting for each component is to measure the hybrid contract at the redemption amount that is payable at the end of the reporting period if the holder exercised its right to put the instrument back to the issuer. B4.3.8 The economic characteristics and risks of an embedded derivative are closely related to the economic characteristics and risks of the host contract in the following examples. In these examples, an entity does not account fo .....

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ve could at least double the holder s initial rate of return on the host contract and could result in a rate of return that is at least twice what the market return would be for a contract with the same terms as the host contract. (b) An embedded floor or cap on the interest rate on a debt contract or insurance contract is closely related to the host contract, provided the cap is at or above the market rate of interest and the floor is at or below the market rate of interest when the contract is .....

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d in a foreign currency and is embedded in a host debt instrument (for example, a dual currency bond) is closely related to the host debt instrument. Such a derivative is not separated from the host instrument because Ind AS 21 TheEffects of Changes in Foreign Exchange Rates requires foreign currency gainsand losses on monetary items to be recognised in profit or loss. (d) An embedded foreign currency derivative in a host contract that is an insurance contract or not a financial instrument (such .....

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transactions around the world (such as the US dollar for crude oil transactions); or (iii) a currency that is commonly used in contracts to purchase or sell nonfinancial items in the economic environment in which the transaction takes place (eg a relatively stable and liquid currency that is commonly used in local business transactions or external trade). (e) An embedded prepayment option in an interest-only or principal-only strip is closely related to the host contract provided the host contr .....

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is not leveraged and the index relates to inflation in the entity s own economic environment), (ii) contingent rentals based on related sales or (iii) contingent rentals based on variable interest rates. (g) A unit-linking feature embedded in a host financial instrument or host insurance contract is closely related to the host instrument or host contract if the unit-denominated payments are measured at current unit values that reflect the fair values of the assets of the fund. A unit-linking fea .....

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comes a party to a hybrid contract with a host that is not an asset within the scope of this Standard and with one or more embedded derivatives, paragraph 4.3.3 requires the entity to identify any such embedded derivative, assess whether it is required to be separated from the host contract and, for those that are required to be separated, measure the derivatives at fair value at initial recognition and subsequently. These requirements can be more complex, or result in less reliable measures, th .....

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ragraph 4.3.5(a) and (b) because doing so would not reduce complexity or increase reliability. Reassessment of embedded derivatives B4.3.11 In accordance with paragraph 4.3.3, an entity shall assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash f .....

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uired in: (a) a business combination (as defined in Ind AS103 Business Combinations); (b) a combination of entities or businesses under common control as described in paragraphs B1-B4 of Ind AS103; or (c) the formation of a joint venture as defined in Ind AS111 Joint Arrangements or their possible reassessment at the date of acquisition.2 Reclassification of financial assets (Section 4.4) Reclassification of financial assets B4.4.1 Paragraph 4.4.1 requires an entity to reclassify financial asset .....

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mple, when the entity has acquired, disposed of or terminated a business line. Examples of a change in business model include the following: (a) An entity has a portfolio of commercial loans that it holds to sell in the short term. The entity acquires a company that manages commercial loans and has a business model that holds the loans in order to collect the contractual cash flows. The portfolio of commercial loans is no longer for sale, and the portfolio is now managed together with the acquir .....

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rtgage business and hence must reclassify all affected financial assets on 1 April (ie the first day of the entity s next reporting period), the entity must not accept new retail mortgage business or otherwise engage in activities consistent with its former business model after 15 February. B4.4.3 The following are not changes in business model: (a) a change in intention related to particular financial assets (even in circumstances of significant changes in market conditions). (b) the temporary .....

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an the financial instrument, an entity shall measure the fair value of the financial instrument. For example, the fair value of a long-term loan or receivable that carries no interest can be measured as the present value of all future cash receipts discounted using the prevailing market rate(s) of interest for a similar instrument (similar as to currency, term, type of interest rate and other factors) with a similar credit rating. Any additional amount lent is an expense or a reduction of income .....

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ation given or received, see also Ind AS113). If an entity determines that the fair value at initial recognition differs from the transaction price as mentioned in paragraph 5.1.1A, the entity shall account for that instrument at that date as follows: (a) at the measurement required by paragraph 5.1.1 if that fair value is evidenced by a quoted price in an active market for an identical asset or liability (ie a Level 1 input) or based on a valuation technique that uses only data from observable .....

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rket participants would take into account when pricing the asset or liability. Subsequent measurement (Sections 5.2 and 5.3) B5.2.1 If a financial instrument that was previously recognised as a financial asset is measured at fair value through profit or loss and its fair value decreases below zero, it is a financial liability measured in accordance with paragraph 4.2.1. However, hybrid contracts with hosts that are assets within the scope of this Standard are always measured in accordance with p .....

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ice of the asset is ₹ 100. If the asset were sold, a commission of ₹ 3 would be paid. On that date, the entity measures the asset at ₹ 100 (without regard to the possible commission on sale) and recognises a loss of ₹ 2 in other comprehensive income. If the financial asset is measured at fair value through other comprehensive income in accordance with paragraph 4.1.2A, the transaction costs are amortised to profit or loss using the effective interest method. B5.2.2A The s .....

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nsufficient more recent information is available to measure fair value, or if there is a wide range of possible fair value measurements and cost represents the best estimate of fair value within that range. B5.2.4 Indicators that cost might not be representative of fair value include: (a) a significant change in the performance of the investee compared with budgets, plans or milestones. (b) changes in expectation that the investee s technical product milestones will be achieved. (c) a significan .....

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either by the investee (such as a fresh issue of equity), or by transfers of equity instruments between third parties. B5.2.5 The list in paragraph B5.2.4 is not exhaustive. An entity shall use all information about the performance and operations of the investee that becomes available after the date of initial recognition. To the extent that any such relevant factors exist, they may indicate that cost might not be representative of fair value. In such cases, the entity must measure fair value. .....

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at are an integral part of the effective interest rate of a financial instrument are treated as an adjustment to the effective interest rate, unless the financial instrument is measured at fair value, with the change in fair value being recognised in profit or loss. In those cases, the fees are recognised as revenue or expense when the instrument is initially recognised. B5.4.2 Fees that are an integral part of the effective interest rate of a financial instrument include: (a) origination fees r .....

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eived by the entity to originate a loan when the loan commitment is not measured in accordance with paragraph 4.2.1(a) and it is probable that the entity will enter into a specific lending arrangement. These fees are regarded as compensation for an ongoing involvement with the acquisition of a financial instrument. If the commitment expires without the entity making the loan, the fee is recognised as revenue on expiry. (c) origination fees paid on issuing financial liabilities measured at amorti .....

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115 include: (a) fees charged for servicing a loan; (b) commitment fees to originate a loan when the loan commitment is not measured in accordance with paragraph 4.2.1(a) and it is unlikely that a specific lending arrangement will be entered into; and (c) loan syndication fees received by an entity that arranges a loan and retains no part of the loan package for itself (or retains a part at the same effective interest rate for comparable risk as other participants).] B5.4.4 When applying the eff .....

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ion costs, premiums or discounts relate is repriced to market rates before the expected maturity of the financial instrument. In such a case, the appropriate amortisation period is the period to the next such repricing date. For example, if a premium or discount on a floating-rate financial instrument reflects the interest that has accrued on that financial instrument since the interest was last paid, or changes in the market rates since the floating interest rate was reset to the market rates, .....

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arket rates, it is amortised over the expected life of the financial instrument. B5.4.5 For floating-rate financial assets and floating-rate financial liabilities, periodic reestimation of cash flows to reflect the movements in the market rates of interest alters the effective interest rate. If a floating-rate financial asset or afloating-rate financial liability is recognised initially at an amount equal to the principal receivable or payable on maturity, re-estimating the future interest payme .....

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g amount of the financial asset or amortised cost of the financial liability as the present value of the estimated future contractual cash flows that are discounted at the financial instrument s original effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impaired financial assets) or, when applicable, the revised effective interest rate calculated in accordance with paragraph 6.5.10. The adjustment is recognised in profit or loss as income or e .....

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at a credit-adjusted effective interest rate should be applied solely because the financial asset has high credit risk at initial recognition. Transaction costs B5.4.8 Transaction costs include fees and commission paid to agents (including employees acting as selling agents), advisers, brokers and dealers, levies by regulatory agencies and security exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or .....

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ividual assessment basis B5.5.1 In order to meet the objective of recognising lifetime expected credit losses for significant increases in credit risk since initial recognition, it may be necessary to perform the assessment of significant increases in credit risk on a collective basis by considering information that is indicative of significant increases in credit risk on, for example, a group or sub-group of . Thisis to ensure that an entity meets the objective of recognising lifetime expected .....

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observed. Consequently when reasonable and supportable information that is more forward-looking than past due information is available without undue cost or effort, it must be used to assess changes in credit risk. B5.5.3 However, depending on the nature of the and the credit risk information available for particular groups of , an entity may not be able to identify significant changes in credit risk for individual before the financial instrument becomes past due. This may be the case for such .....

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entity does not have reasonable and supportable information that is available without undue cost or effort to measure lifetime expected credit losses on an individual instrument basis. In that case, lifetime expected credit losses shall be recognised on a collective basis that considers comprehensive credit risk information. This comprehensive credit risk information must incorporate not only past due information but also all relevant credit information, including forward-looking macroeconomic i .....

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increases in credit risk to be identified on a timely basis. The entity should not obscure this information by grouping with different risk characteristics. Examples of shared credit risk characteristics may include, but are not limited to, the: (a) instrument type; (b) credit risk ratings; (c) collateral type; (d) date of initial recognition; (e) remaining term to maturity; (f) industry; (g) geographical location of the borrower; and (h) the value of collateral relative to the financial asset .....

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red credit risk characteristics, the entity should recognise lifetime expected credit losses on a portion of the financial assets for which credit risk is deemed to have increased significantly. The aggregation of to assess whether there are changes in credit risk on a collective basis may change over time as new information becomes available on groups of, or individual, . Timing of recognising lifetime expected credit losses B5.5.7 The assessment of whether lifetime expected credit losses shoul .....

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r loan commitments, an entity considers changes in the risk of a default occurring on the loan to which a loan commitment relates. For financial guarantee contracts, an entity considers the changes in the risk that the specified debtor will default on the contract. B5.5.9 The significance of a change in the credit risk since initial recognition depends on the risk of a default occurring as at initial recognition. Thus, a given change, in absolute terms, in the risk of a default occurring will be .....

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Because of the relationship between the expected life and the risk of a default occurring, the change in credit risk cannot be assessed simply by comparing the change in the absolute risk of a default occurring over time. For example, if the risk of a default occurring for a financial instrument with an expected life of 10 years at initial recognition is identical to the risk of a default occurring on thatfinancial instrument when its expected life in a subsequent period is only five years, that .....

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demonstrate whether credit risk has increased significantly since initial recognition. B5.5.12 An entity may apply various approaches when assessing whether the credit risk on a financial instrument has increased significantly since initial recognition or when measuring expected credit losses. An entity may apply different approaches for different . An approach that does not include an explicit probability of default as an input per se, such as a credit loss rate approach, can be consistent wit .....

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redit risk. B5.5.13 The methods used to determine whether credit risk has increased significantly on a financial instrument since initial recognition should consider the characteristics of the financial instrument (or group of ) and the default patterns in the past for comparable . Despite the requirement in paragraph 5.5.9, for for which default patterns are not concentrated at a specific point during the expected life of the financial instrument, changes in the risk of a default occurring over .....

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ng over the next 12 months to determine whether lifetime expected credit losses should be recognised. For example, the change in the risk of a default occurring in the next 12 months may not be a suitable basis for determining whether credit risk has increased on a financial instrument with a maturity of more than 12 months when: (a) the financial instrument only has significant payment obligations beyond the next 12 months; (b) changes in relevant macroeconomic or other credit-related factors o .....

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tion that is available without undue cost or effort and that may affect the credit risk on a financial instrument in accordance with paragraph 5.5.17(c). An entity need not undertake an exhaustive search for information when determining whether credit risk has increased significantly since initial recognition. B5.5.16 Credit risk analysis is a multifactor and holistic analysis; whether a specific factor is relevant, and its weight compared to other factors, will depend on the type of product, ch .....

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lio of to determine whether the requirement in paragraph 5.5.3 for the recognition of lifetime expected credit losses has been met. B5.5.17 The following non-exhaustive list of information may be relevant in assessing changes in credit risk: (a) significant changes in internal price indicators of credit risk as a result of a change in credit risk since inception, including, but not limited to, the credit spread that would result if a particular financial instrument or similar financial instrumen .....

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icant changes in external market indicators of credit risk for a particular financial instrument or similar with the same expected life. Changes in market indicators of credit risk include, but are not limited to: (i) the credit spread; (ii) the credit default swap prices for the borrower; (iii) the length of time or the extent to which the fair value of a financial asset has been less than its amortised cost; and (iv) other market information related to the borrower, such as changes in the pric .....

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inancial or economic conditions that are expected to cause a significant change in the borrower s ability to meet its debt obligations, such as an actual or expected increase in interest rates or an actual or expected significant increase in unemployment rates. (g) an actual or expected significant change in the operating results of the borrower. Examples include actual or expected declining revenues or margins, increasing operating risks, working capital deficiencies, decreasing asset quality, .....

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nificant change in the borrower s ability to meet its debt obligations, such as a decline in the demand for the borrower s sales product because of a shift in technology. (j) significant changes in the value of the collateral supporting the obligation or in the quality of third-party guarantees or credit enhancements, which are expected to reduce the borrower s economic incentive to make scheduled contractual payments or to otherwise have an effect on the probability of a default occurring. For .....

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or an actual or expected significant change in the quality of credit enhancement, that are expected to reduce the borrower s economic incentive to make scheduled contractual payments. Credit quality enhancements or support include the consideration of the financial condition of the guarantor and/or, for interests issued in securitisations, whether subordinated interests are expected to be capable of absorbing expected credit losses (for example, on the loans underlying the security). (m) expecte .....

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delayed contractual payments or significant increases in the expected number of credit card borrowers who are expected to approach or exceed their credit limit or who are expected to be paying the minimum monthly amount). (o) changes in the entity s credit management approach in relation to the financial instrument; ie based on emerging indicators of changes in the credit risk of the financial instrument, the entity s credit risk management practice is expected to become more active or to be foc .....

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ime expected credit losses. That is, the information does not need to flow through a statistical model or credit ratings process in order to determine whether there has been a significant increase in the credit risk of the financial instrument. In other cases, an entity may need to consider other information, including information from its statistical models or credit ratings processes. Alternatively, the entity may base the assessment on both types of information, ie qualitative factors that ar .....

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edit losses should be recognised even when using forward-looking information (including macroeconomic factors on a portfolio level). B5.5.20 An entity can rebut this presumption. However, it can do so only when it has reasonable and supportable information available that demonstrates that even if contractual payments become more than 30 days past due, this does not represent a significant increase in the credit risk of a financial instrument. For example when non-payment was an administrative ov .....

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on of lifetime expected credit losses to when a financial asset is regarded as credit-impaired or an entity s internal definition of default. that have low credit risk at the reporting date B5.5.22 The credit risk on a financial instrument is considered low for the purposes of paragraph 5.5.10, if the financial instrument has a low risk of default, the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and adverse changes in economic and business condit .....

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ve to the credit risk of the jurisdiction within which an entity operates. B5.5.23 To determine whether a financial instrument has low credit risk, an entity may use its internal credit risk ratings or other methodologies that are consistent with a globally understood definition of low credit risk and that consider the risks and the type of that are being assessed. An external rating of investment grade is an example of a financial instrument that may be considered as having low credit risk. How .....

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ting date. In such a case, an entity shall determine whether there has been a significant increase in credit risk since initial recognition and thus whether lifetime expected credit losses are required to be recognised in accordance with paragraph 5.5.3. Modifications B5.5.25 In some circumstances, the renegotiation or modification of the contractual cash flows of a financial asset can lead to the derecognition of the existing financial asset in accordance with this Standard. When the modificati .....

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t equal to 12-month expected credit losses until the requirements for the recognition of lifetime expected credit losses in paragraph 5.5.3 are met. However, in some unusual circumstances following a modification that results in derecognition of the original financial asset, there may be evidence that the modified financial asset is credit-impaired at initial recognition, and thus, the financial asset should be recognised as an originated credit-impaired financial asset. This might occur, for ex .....

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to have lower credit risk. An entity shall assess whether there has been a significant increase in credit risk since initial recognition on the basis of all reasonable and supportable information that is available without undue cost or effort. This includes historical and forward-looking information and an assessment of the credit risk over the expected life of the financial asset, which includes information about the circumstances that led to the modification. Evidence that the criteria for th .....

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l terms. Measurement of expected credit losses Expected credit losses B5.5.28 Expected credit losses are a probability-weighted estimate of credit losses (ie the present value of all cash shortfalls) over the expected life of the financial instrument. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive. Because expected credit losses consider the amount and timing of payments, a .....

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der of the loan commitment draws down the loan; and (b) the cash flows that the entity expects to receive if the loan is drawn down. B5.5.31 An entity s estimate of expected credit losses on loan commitments shall be consistent with its expectations of drawdowns on that loan commitment, ie it shall consider the expected portion of the loan commitment that will be drawn down within 12 months of the reporting date when estimating 12-month expected credit losses, and the expected portion of the loa .....

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holder, the debtor or any other party. If the asset is fully guaranteed, the estimation of cash shortfalls for a financial guarantee contract would be consistent with the estimations of cash shortfalls for the asset subject to the guarantee. B5.5.33 For a financial asset that is credit-impaired at the reporting date, but that is not a purchased or originated credit-impaired financial asset, an entity shall measure the expected credit losses as the difference between the asset s gross carrying a .....

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en measuring expected credit losses if they are consistent with the principles in paragraph 5.5.17. An example of a practical expedient is the calculation of the expected credit losses on trade receivables using a provision matrix. The entity would use its historical credit loss experience (adjusted as appropriate in accordance with paragraphs B5.5.51- B5.5.52) for trade receivables to estimate the 12-month expected credit losses or the lifetime expected credit losses on the financial assets as .....

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oss patterns for different customer segments. Examples of criteria that might be used to group assets include geographical region, product type, customer rating, collateral or trade credit insurance and type of customer (such as wholesale or retail). Definition of default B5.5.36 Paragraph 5.5.9 requires that when determining whether the credit risk on a financial instrument has increased significantly, an entity shall consider the change in the risk of a default occurring since initial recognit .....

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has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate. The definition of default used for these purposes shall be applied consistently to all unless information becomes available that demonstrates that another default definition is more appropriate for a particular financial instrument. Period over which to estimate expected credit losses B5.5.38 In accordance with paragraph 5.5.19, the maximum period over which expected credit losse .....

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ntity s exposure to credit losses to the contractual notice period. For example, revolving credit facilities, such as credit cards and overdraft facilities, can be contractually withdrawn by the lender with as little as one day s notice. However, in practice lenders continue to extend credit for a longer period and may only withdraw the facility after the credit risk of the borrower increases, which could be too late to prevent some or all of the expected credit losses. These generally have the .....

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cancelled when the entity becomes aware of an increase in credit risk at the facility level; and (c) the are managed on a collective basis. B5.5.40 When determining the period over which the entity is expected to be exposed to credit risk, but for which expected credit losses would not be mitigated by the entity s normal credit risk management actions, an entity should consider factors such as historical information and experience about: (a) the period over which the entity was exposed to credit .....

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, an estimate of expected credit losses shall always reflect the possibility that a credit loss occurs and the possibility that no credit loss occurs even if the most likely outcome is no credit loss. B5.5.42 Paragraph 5.5.17(a) requires the estimate of expected credit losses to reflect an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes. In practice, this may not need to be a complex analysis. In some cases, relatively simple modelling may b .....

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l reflect at least two outcomes in accordance with paragraph 5.5.18. B5.5.43 For lifetime expected credit losses, an entity shall estimate the risk of a default occurring on the financial instrument during its expected life. 12-month expected credit losses are a portion of the lifetime expected credit losses and represent the lifetime cash shortfalls that will result if a default occurs in the 12 months after the reporting date (or a shorter period if the expected life of a financial instrument .....

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d at initial recognition or an approximation thereof. If a financial instrument has a variable interest rate, expected credit losses shall be discounted using the current effective interest rate determined in accordance with paragraph B5.4.5. B5.5.45 For purchased or originated credit-impaired financial assets, expected credit losses shall be discounted using the credit-adjusted effective interest rate determined at initial recognition. B5.5.46 Expected credit losses on lease receivables shall b .....

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itment shall be treated as a continuation of that commitment instead of as a new financial instrument. The expected credit losses on the financial asset shall therefore be measured considering the initial credit risk of the loan commitment from the date that the entity became a party to the irrevocable commitment. B5.5.48 Expected credit losses on financial guarantee contracts or on loan commitments for which the effective interest rate cannot be determined shall be discounted by applying a disc .....

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including information about past events, current conditions and forecasts of future economic conditions. Information that is available for financial reporting purposes is considered to be available without undue cost or effort. B5.5.50 An entity is not required to incorporate forecasts of future conditions over the entire expected life of a financial instrument. The degree of judgement that is required to estimate expected credit losses depends on the availability of detailed information. As th .....

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ormation that is available without undue cost or effort and that is relevant to the estimate of expected credit losses, including the effect of expected prepayments. The information used shall include factors that are specific to the borrower, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date. An entity may use various sources of data, that may be both internal (entity-specific) and external. Possible data sour .....

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erience, on the basis of current observable data to reflect the effects of the current conditions and its forecasts of future conditions that did not affect the period on which the historical data is based, and to remove the effects of the conditions in the historical period that are not relevant to the future contractual cash flows. In some cases, the best reasonable and supportable information could be the unadjusted historical information, depending on the nature of the historical information .....

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in the magnitude of those changes). An entity shall regularly review the methodology and assumptions used for estimating expected credit losses to reduce any differences between estimates and actual credit loss experience. B5.5.53 When using historical credit loss experience in estimating expected credit losses, it is important that information about historical credit loss rates is applied to groups that are defined in a manner that is consistent with the groups for which the historical credit l .....

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in estimating expected credit losses, an entity should also consider observable market information about the credit risk of the particular financial instrument or similar . Collateral B5.5.55 For the purposes of measuring expected credit losses, the estimate of expected cash shortfalls shall reflect the cash flows expected from collateral and other credit enhancements that are part of the contractual terms and are notrecognised separately by the entity. The estimate of expected cash shortfalls .....

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ntract should be included in this analysis. Any collateral obtained as a result of foreclosure is not recognised as an asset that is separate from the collateralised financial instrument unless it meets the relevant recognition criteria for an asset in this or other Standards. Reclassification of financial assets (Section 5.6) B5.6.1 If an entity reclassifies financial assets in accordance with paragraph 4.4.1, paragraph 5.6.1 requires that the reclassification is applied prospectively from the .....

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urement category: (a) the recognition of interest revenue will not change and therefore the entity continues to use the same effective interest rate. (b) the measurement of expected credit losses will not change because both measurement categories apply the same impairment approach. However if a financial asset is reclassified out of the fair value through other comprehensive income measurement category and into the amortised cost measurement category, a loss allowance would be recognised as an .....

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income and would be disclosed from the reclassification date. B5.6.2 However, an entity is not required to separately recognise interest revenue or impairment gains or losses for a financial asset measured at fair value through profit or loss. Consequently, when an entity reclassifies a financial asset out of the fair value through profit or loss measurement category, the effective interest rate is determined on the basis of the fair value of the asset at the reclassification date. In addition, .....

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ounts presented in other comprehensive income shall not be subsequently transferred to profit or loss. However, the entity may transfer the cumulative gain or loss within equity. Dividends on such investments are recognised in profit or loss in accordance with paragraph 5.7.6 unless the dividend clearly represents a recovery of part of the cost of the investment. B5.7.1A Unless paragraph 4.1.5 applies, paragraph 4.1.2A requires that a financial asset is measured at fair value through other compr .....

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at fair value. Gains or losses, other than those that are recognised in profit or loss in accordance with paragraphs 5.7.10-5.7.11, are recognised in other comprehensive income. When these financial assets are derecognised, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss. This reflects the gain or loss that would have been recognised in profit or loss upon derecognition if the financial asset had been measured at amortised cost. B .....

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e of an equity instrument for which an entity has elected to present changes in fair value in other comprehensive income in accordance with paragraph 5.7.5 (see paragraph 6.5.8). B5.7.2A For the purpose of recognising foreign exchange gains and losses under Ind AS 21, a financial asset measured at fair value through other comprehensive income in accordance with paragraph 4.1.2A is treated as a monetary item. Accordingly, such a financial asset is treated as an asset measured at amortised cost in .....

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nsive income in accordance with paragraph 5.7.5 includes any related foreign exchange component. B5.7.4 If there is a hedging relationship between a non-derivative monetary asset and a non-derivative monetary liability, changes in the foreign currency component of those are presented in profit or loss. Liabilities designated as at fair value through profit or loss B5.7.5 When an entity designates a financial liability as at fair value through profit or loss, it must determine whether presenting .....

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s of changes in the liability s credit risk will be offset in profit or loss by a change in the fair value of another financial instrument measured at fair value through profit or loss. Such an expectation must be based on an economic relationship between the characteristics of the liability and the characteristics of the other financial instrument. B5.7.7 That determination is made at initial recognition and is not reassessed. For practical purposes the entity need not enter into all of the ass .....

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relationships between the characteristics of the liabilities designated as at fair value through profit or loss and the characteristics of the other . Ind AS107 requires an entity to provide qualitative disclosures in the notes to the financial statements about its methodology for making that determination. B5.7.8 If such a mismatch would be created or enlarged, the entity is required to present all changes in fair value (including the effects of changes in the credit risk of the liability) in p .....

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effects of changes in the credit risk of the liability were presented in other comprehensive income. A mortgage bank provides loans to customers and funds those loans by selling bonds with matching characteristics (eg amount outstanding, repayment profile, term and currency) in the market. The contractual terms of the loan permit the mortgage customer to prepay its loan (ie satisfy its obligation to the bank) by buying the corresponding bond at fair value in the market and delivering that bond .....

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. Consequently, the effects of changes in the credit risk of the liability (the bond) will be offset in profit or loss by a corresponding change in the fair value of a financial asset (the loan). If the effects of changes in the liability s credit risk were presented in other comprehensive income there would be an accounting mismatch in profit or loss. Consequently, the mortgage bank is required to present all changes in fair value of the liability (including the effects of changes in the liabil .....

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rposes of applying the requirements in paragraphs 5.7.7 and 5.7.8, an accounting mismatch is not caused solely by the measurement method that an entity uses to determine the effects of changes in a liability s credit risk. An accounting mismatch in profit or loss would arise only when the effects of changes in the liability s credit risk (as defined in Ind AS107) are expected to be offset by changes in the fair value of another financial instrument. A mismatch that arises solely as a result of t .....

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e measurement of the entity s financial assets and the entire fair value change of those assets is presented in profit or loss. However, such a mismatch is caused by measurement imprecision, not the offsetting relationship described in paragraph B5.7.6 and, therefore, does not affect the determination required by paragraphs 5.7.7 and 5.7.8. The meaning of credit risk (paragraphs 5.7.7 and 5.7.8) B5.7.13 Ind AS107 defines credit risk as the risk that one party to a financial instrument will cause .....

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ity. The credit risk on the collateralised liability will be less than the credit risk of the non-collateralised liability. The credit risk for a collateralised liability may be close to zero. B5.7.14 For the purposes of applying the requirement in paragraph 5.7.7(a), credit risk is different from asset-specific performance risk. Asset-specific performance risk is not related to the risk that an entity will fail to discharge a particular obligation but instead it is related to the risk that a si .....

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teristics. The entity is legally isolated so the assets in the entity are ring-fenced solely for the benefit of its investors, even in the event of bankruptcy. The entity enters into no other transactions and the assets in the entity cannot be hypothecated. Amounts are due to the entity s investors only if the ringfenced assets generate cash flows. Thus, changes in the fair value of the liability primarily reflect changes in the fair value of the assets. The effect of the performance of the asse .....

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se to market risk (see paragraphs B5.7.17 and B5.7.18); or (b) using an alternative method the entity believes more faithfully represents the amount of change in the liability s fair value that is attributable to changes in its credit risk. B5.7.17 Changes in market conditions that give rise to market risk include changes in a benchmark interest rate, the price of another entity s financial instrument, a commodity price, a foreign exchange rate or an index of prices or rates. B5.7.18 If the only .....

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rive at an instrument-specific component of the internal rate of return. (b) Next, the entity calculates the present value of the cash flows associated with the liability using the liability s contractual cash flows at the end of the period and a discount rate equal to the sum of (i) the observed (benchmark) interest rate at the end of the period and (ii) the instrumentspecific component of the internal rate of return as determined in (a). (c) The difference between the fair value of the liabili .....

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od would not be appropriate if changes in fair value arising from other factors are significant. In those cases, an entity is required to use an alternative method that more faithfully measures the effects of changes in the liability s credit risk (see paragraph B5.7.16(b)). For example, if the instrument in the example contains an embedded derivative, the change in fair value of the embedded derivative is excluded in determining the amount to be presented in other comprehensive income in accord .....

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ed for, cannot be designated as separate hedging instruments. B6.2.2 An entity s own equity instruments are not financial assets or financial liabilities of the entity and therefore cannot be designated as hedging instruments. B6.2.3 For hedges of foreign currency risk, the foreign currency risk component of a nonderivative financial instrument is determined in accordance with Ind AS 21. Written options B6.2.4 This Standard does not restrict the circumstances in which a derivative that is measur .....

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rivative financial asset or a non-derivative financial liability measured at fair value through profit or loss as a hedging instrument, it may only designate the non-derivative financial instrument in its entirety or a proportion of it. B6.2.6 A single hedging instrument may be designated as a hedging instrument of more than one type of risk, provided that there is a specific designation of the hedging instrument and of the different risk positions as hedged items. Those hedged items can be in d .....

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hare of the investee s profit or loss, instead of changes in the investment s fair value. For a similar reason, an investment in a consolidated subsidiary cannot be a hedged item in a fair value hedge. This is because consolidation recognises in profit or loss the subsidiary s profit or loss, instead of changes in the investment s fair value. A hedge of a net investment in a foreign operation is different because it is a hedge of the foreign currency exposure, not a fair value hedge of the chang .....

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aggregated exposure. For example: (a) an entity may hedge a given quantity of highly probable coffee purchases in 15 months time against price risk (based on US dollars) using a 15-month futures contract for coffee. The highly probable coffee purchases and the futures contract for coffee in combination can be viewed as a 15-month fixed-amount US dollar foreign currency risk exposure for risk management purposes (ie like any fixed-amount US dollar cash outflow in 15 months time). (b) an entity ma .....

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that the entity wants to fix interest rates). In such a situation an entity may enter into a 10-year fixed-to-floating cross-currency interest rate swap that swaps the fixed-rate foreign currency debt into a variable-rate functional currency exposure. This is overlaid with a two-year interest rate swap that-on the basis of the functional currency-swaps variable-rate debt into fixed-rate debt. In effect, the fixed-rate foreign currency debt and the 10-year fixed-to-floating crosscurrency interest .....

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example: (a) derivatives that are part of an aggregated exposure are recognised as separate assets or liabilities measured at fair value; and (b) if a hedging relationship is designated between the items that constitute the aggregated exposure, the way in which a derivative is included as part of an aggregated exposure must be consistent with the designation of that derivative as the hedging instrument at the level of the aggregated exposure. For example, if an entity excludes the forward elemen .....

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bable forecast intragroup transaction may qualify as a hedged item in a cash flow hedge, provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and that the foreign currency risk will affect consolidated profit or loss. For this purpose an entity can be a parent, subsidiary, associate, joint arrangement or branch. If the foreign currency risk of a forecast intragroup transaction does not affect consolidated profi .....

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group if there is an onward sale of the inventory to a party external to the group. Similarly, a forecast intragroup sale of plant and equipment from the group entity that manufactured it to a group entity that will use the plant and equipment in its operations may affect consolidated profit or loss. This could occur, for example, because the plant and equipment will be depreciated by the purchasing entity and the amount initially recognised for the plant and equipment may change if the forecast .....

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hedged items B6.3.7 A component is a hedged item that is less than the entire item. Consequently, a component reflects only some of the risks of the item of which it is a part or reflects the risks only to some extent (for example, when designating a proportion of an item). Risk components B6.3.8 To be eligible for designation as a hedged item, a risk component must be a separately identifiable component of the financial or the non-financial item, and the changes in the cash flows or the fair va .....

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k components as hedged items, an entity considers whether the risk components are explicitly specified in a contract (contractually specified risk components) or whether they are implicit in the fair value or the cash flows of an item of which they are a part (non-contractually specified risk components). Non-contractually specified risk components can relate to items that are not a contract (for example, forecast transactions) or contracts that do not explicitly specify the component (for examp .....

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omponent is specified by the terms and conditions of the supply contract it is a contractually specified risk component. Hence, because of the pricing formula, Entity A concludes that the gas oil price exposure is separately identifiable. At the same time, there is a market for gas oil forward contracts. Hence, Entity A concludes that the gas oil price exposure is reliably measurable. Consequently, the gas oil price exposure in the supply contract is a risk component that is eligible for designa .....

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uring site. These contracts price a tonne of coffee based on the exchange-traded coffee futures contract price plus a fixed price differential plus a variable logistics services charge using a pricing formula. The coffee supply contract is an executory contract in accordance with which Entity B takes actual delivery of coffee. For deliveries that relate to the current harvest, entering into the coffee supply contracts allows Entity B to fix the price differential between the actual coffee qualit .....

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nes that it is exposed to three different risks: coffee price risk reflecting the benchmark quality, coffee price risk reflecting the difference (spread) between the price for the benchmark quality coffee and the particular Arabica coffee from Colombia that it actually receives, and the variable logistics costs. For deliveries related to the current harvest, after Entity B enters into a coffee supply contract, the coffee price risk reflecting the benchmark quality is a contractually specified ri .....

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of the market structure takes into account how eventual deliveries of the particular coffee that it receives are priced. Hence, on the basis of this analysis of the market structure, Entity Bconcludes that the forecast transactions also involve the coffee price risk that reflects the benchmark quality as a risk component that is separately identifiable and reliably measurable even though it is not contractually specified. Consequently, Entity B may designate hedging relationships on a risk compo .....

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ime horizons (12-24 months) Entity C uses crude oil contracts because only these have sufficient market liquidity. For time horizons of 6-12 months Entity C uses gas oil derivatives because they are sufficiently liquid. For time horizons up to six months Entity C uses jet fuel contracts. Entity C s analysis of the market structure for oil and oil products and its evaluation of the relevant facts and circumstances is as follows: (i) Entity C operates in a geographical area in which Brent is the c .....

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#9679; the benchmark gas oil futures contract, which is used as the pricing reference for distillates-for example, jet fuel spread derivatives cover the price differential between jet fuel and that benchmark gas oil; and ● the benchmark gas oil crack spread derivative (ie the derivative for the price differential between crude oil and gas oil-a refining margin), which is indexed to Brent crude oil. (ii) the pricing of refined oil products does not depend on which particular crude oil is pr .....

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ey are not contractually specified. Consequently, Entity Cmay designate hedging relationships for forecast jet fuel purchases on a risk components basis (for crude oil or gas oil). This analysis also means that if, for example, Entity C used crude oil derivatives based on West Texas Intermediate (WTI) crude oil, changes in the price differential between Brent crude oil and WTI crude oil would cause hedge ineffectiveness. (d) Entity D holds a fixed-rate debt instrument. This instrument is issued .....

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changes in the benchmark rate as they happen. Entity D concludes that the benchmark rate is a component that can be separately identified and reliably measured. Consequently, Entity D may designate hedging relationships for the fixed rate debt instrument on a risk component basis for the benchmark interest rate risk. B6.3.11 When designating a risk component as a hedged item, the hedge accounting requirements apply to that risk component in the same way as they apply to other hedged items that .....

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s the designated risk), but not its time value, reflects a one-sided risk in a hedged item. For example, an entity can designate the variability of future cash flow outcomes resulting from a price increase of a forecast commodity purchase. In such a situation, the entity designates only cash flow losses that result from an increase in the price above the specified level. The hedged risk does not include the time value of a purchased option, because the time value is not a component of the foreca .....

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relevant debt market. B6.3.14 For example, an entity issues debt in an environment in which inflation-linked bonds have a volume and term structure that results in a sufficiently liquid market that allows constructing a term structure of zero-coupon real interest rates. This means that for the respective currency, inflation is a relevant factor that is separately considered by the debt markets. In those circumstances theinflation risk component could be determined by discounting the cash flows o .....

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est rates to be constructed. In this case the analysis of the market structure and of the facts and circumstances does not support the entity concluding that inflation is a relevant factor that is separately considered by the debt markets. Hence, the entity cannot overcome the rebuttable presumption that inflation risk that is not contractually specified is not separately identifiable and reliably measurable. Consequently, an inflation risk component would not be eligible for designation as the .....

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separately) is separately identifiable and reliably measurable, as long as other cash flows of the instrument are not affected by the inflation risk component. Components of a nominal amount B6.3.16 There are two types of components of nominal amounts that can be designated as the hedged item in a hedging relationship: a component that is a proportion of an entire item or a layer component. The type of component changes the accounting outcome. An entity shall designate the component for account .....

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, for example, the bottom layer, measuring 5 million cubic metres, of the natural gas stored in location XYZ; (c) a part of a physical or other transaction volume, for example, the first 100 barrels of the oil purchases in June 201X or the first 100 MWh of electricity sales in June 201X; or (d) a layer from the nominal amount of the hedged item, for example, the last ₹ 80 million of a ₹ 100 million firm commitment, the bottom layer of ₹ 20 million of a ₹ 100 million fixed .....

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ttributable to the hedged risk). The fair value hedge adjustment must be recognised in profit or loss no later than when the item is derecognised. Consequently, it is necessary to track the item to which the fair value hedge adjustment relates. For a layer component in a fair value hedge, this requires an entity to track the nominal amount from which it is defined. For example, in paragraph B6.3.18(d), the total defined nominal amount of ₹ 100 million must be tracked in order to track the .....

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em B6.3.21 If a component of the cash flows of a financial or a non-financial item is designated as the hedged item, that component must be less than or equal to the total cash flows of the entire item. However, all of the cash flows of the entire item may be designated as the hedged item and hedged for only one particular risk (for example, only for those changes that are attributable to changes in LIBOR or a benchmark commodity price). B6.3.22 For example, in the case of a financial liability .....

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OR minus 100 basis points) that is attributable to changes in LIBOR. If a fixed-rate financial instrument is hedged some time after its origination and interest rates have changed in the meantime, the entity can designate a risk component equal to a benchmark rate that is higher than the contractual rate paid on the item. The entity can do so provided that the benchmark rate is less than the effective interest rate calculated on the assumption that the entity had purchased the instrument on the .....

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hedged item, the effective yield of the asset based on its then fair value of ₹ 90 would have been 9.5 per cent. Because LIBOR is less than this effective yield, the entity can designate a LIBOR component of 8 per cent that consists partly of the contractual interest cash flows and partly of the difference between the current fair value (ieRs.90) and the amount repayable on maturity (ieRs.100). B6.3.24 If a variable-rate financial liability bears interest of (for example) three-month LIBOR .....

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OR with a zero or positive spread. However, if the three-month LIBOR forward curve for the remaining life of that liability (or a part of it) falls below 20 basis points, the hedged item has a lower cash flow variability than a liability that bears interest at three-month LIBOR with a zero or positive spread. B6.3.25 A similar example of a non-financial item is a specific type of crude oil from a particular oil field that is priced off the relevant benchmark crude oil. If an entity sells that cr .....

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ch delivery) does not fall below ₹ 25, the hedged item has the same cash flow variability as a crude oil sale at the benchmark crude oil price (or with a positive spread). However, if the forward price for any delivery falls below ₹ 25, the hedged item has a lower cash flow variability than a crude oil sale at the benchmark crude oil price (or with a positive spread). Qualifying criteria for hedge accounting (Section 6.4) Hedge effectiveness B6.4.1 Hedge effectiveness is the extent t .....

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signating a hedging relationship and on an ongoing basis, an entity shall analyse the sources of hedge ineffectiveness that are expected to affect thehedging relationship during its term. This analysis (including any updates in accordance with paragraph B6.5.21 arising from rebalancing a hedging relationship) is the basis for the entity s assessment of meeting the hedge effectiveness requirements. B6.4.3 For the avoidance of doubt, the effects of replacing the original counterparty with a cleari .....

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the same risk, which is the hedged risk. Hence, there must be an expectation that the value of the hedging instrument and the value of the hedged item will systematically change in response to movements in either the same underlying or underlyings that are economically related in such a way that they respond in a similar way to the risk that is being hedged (for example, Brent and WTI crude oil). B6.4.5 If the underlyings are not the same but are economically related, there can be situations in .....

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.6 The assessment of whether an economic relationship exists includes an analysis of the possible behaviour of the hedging relationship during its term to ascertain whether it can be expected to meet the risk management objective. The mere existence of a statistical correlation between two variables does not, by itself, support a valid conclusion that an economic relationship exists. The effect of credit risk B6.4.7 Because the hedge accounting model is based on a general notion of offset betwee .....

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e in the credit risk of either the hedging instrument or the hedged item that is of such a magnitude that the credit risk dominates the value changes that result from the economic relationship (ie the effect of the changes in the underlyings). A level of magnitude that gives rise to dominance is one that would result in the loss (orgain) from credit risk frustrating the effect of changes in the underlyings on the value of the hedging instrument or the hedged item, even if those changes were sign .....

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severe deterioration in its credit standing, the effect of the changes in the counterparty s credit standing might outweigh the effect of changes in the commodity price on the fair value of the hedging instrument, whereas changes in the value of the hedged item depend largely on the commodity price changes. Hedge ratio B6.4.9 In accordance with the hedge effectiveness requirements, the hedge ratio of the hedging relationship must be the same as that resulting from the quantity of the hedged item .....

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ple, an entity hedges an exposure using a nominal amount of 40 units of a financial instrument, it shall designate the hedging relationship using a hedge ratio that is the same as that resulting from that quantity of 40 units (ie the entity must not use a hedge ratio based on a higher quantity of units that it might hold in total or a lower quantity of units) and the quantity of the hedged item that it actually hedges with those 40 units. B6.4.10 However, the designation of the hedging relations .....

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nship, an entity must adjust the hedge ratio that results from the quantities of the hedged item and the hedging instrument that the entity actually uses if that is needed to avoid such an imbalance. B6.4.11 Examples of relevant considerations in assessing whether an accounting outcome is inconsistent with the purpose of hedge accounting are: (a) whether the intended hedge ratio is established to avoid recognising hedge ineffectiveness for cash flow hedges, or to achieve fair value hedge adjustm .....

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se the standard volume of the hedging instruments does not allow it to enter into that exact quantity of hedging instrument (a lot size issue ). An example is an entity that hedges 100 tonnes of coffee purchases with standard coffee futures contracts that have a contract size of 37,500 lbs (pounds). The entity could only use either five or six contracts (equivalent to 85.0 and 102.1 tonnes respectively) to hedge the purchase volume of 100 tonnes. In that case, the entity designates the hedging r .....

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an ongoing basis, whether a hedging relationship meets the hedge effectiveness requirements. At a minimum, an entity shall perform the ongoing assessment at each reporting date or upon a significant change in the circumstances affecting the hedge effectiveness requirements, whichever comes first. The assessment relates to expectations about hedge effectiveness and is therefore only forward-looking. Methods for assessing whether the hedge effectiveness requirements are met B6.4.13 This Standard .....

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d item match or are closely aligned, it might be possible for an entity to conclude on the basis of a qualitative assessment of those critical terms that the hedging instrument and the hedged item have values that will generally move in the opposite direction because of the same risk and hence that an economic relationship exists between the hedged item and the hedging instrument (see paragraphs B6.4.4-B6.4.6). B6.4.15 The fact that a derivative is in or out of the money when it is designated as .....

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of the hedging relationship is more difficult to predict. In such a situation it might only be possible for an entity to conclude on the basis of a quantitative assessment that an economic relationship exists between the hedged item and the hedging instrument (see paragraphs B6.4.4-B6.4.6). In some situations a quantitative assessment might also be needed to assess whether the hedge ratio used for designating the hedging relationship meets the hedge effectiveness requirements (see paragraphs B6. .....

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source of information to perform the assessment of whether a hedging relationship meets the hedge effectiveness requirements. This means that the management information (or analysis) used for decision-making purposes can be used as a basis for assessing whether a hedging relationship meets the hedge effectiveness requirements. B6.4.19 An entity s documentation of the hedging relationship includes how it will assess the hedge effectiveness requirements, including the method or methods used. The .....

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nt to a period or periods in which the hedged expected future cash flows affect profit or loss. An example of a cash flow hedge is the use of a swap to change floating rate debt (whether measured at amortised cost or fair value) to fixed-rate debt (ie a hedge of a future transaction in which the future cash flows being hedged are the future interest payments). Conversely, a forecast purchase of an equity instrument that, once acquired, will be accounted for at fair value through profit or loss, .....

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. B6.5.3 A hedge of a firm commitment (for example, a hedge of the change in fuel price relating to an unrecognised contractual commitment by an electric utility to purchase fuel at a fixed price) is a hedge of an exposure to a change in fair value. Accordingly, such a hedge is a fair value hedge. However, in accordance with paragraph 6.5.4, a hedge of the foreign currency risk of a firm commitment could alternatively be accounted for as a cash flow hedge. Measurement of hedge ineffectiveness B6 .....

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dged item (this is commonly referred to as a hypothetical derivative ), and, for example for a hedge of a forecast transaction, would be calibrated using the hedged price (or rate) level. For example, if the hedge was for a two-sided risk at the current market level, the hypothetical derivative would represent a hypothetical forward contract that is calibrated to a value of nil at the time of designation of the hedging relationship. If the hedge was for example for a one-sided risk, the hypothet .....

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nd hence results in the same outcome as if that change in value was determined by a different approach. Hence, using a hypothetical derivative is not a method in its own right but a mathematical expedient that can only be used to calculate the value of the hedged item. Consequently, a hypothetical derivative cannot be used to include features in the value of the hedged item that only exist in the hedging instrument (but not in the hedged item). An example is debt denominated in a foreign currenc .....

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e of the hedged item determined using a hypothetical derivative may also be used for the purpose of assessing whether a hedging relationship meets the hedge effectiveness requirements. Rebalancing the hedging relationship and changes to the hedge ratio B6.5.7 Rebalancing refers to the adjustments made to the designated quantities of the hedged item or the hedging instrument of an already existing hedgingrelationship for the purpose of maintaining a hedge ratio that complies with the hedge effect .....

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o allows an entity to respond to changes in the relationship between the hedging instrument and the hedged item that arise from their underlyings or risk variables. For example, a hedging relationship in which the hedging instrument and the hedged item have different but related underlyingschanges in response to a change in the relationship between those two underlyings (for example, different but related reference indices, rates or prices). Hence, rebalancing allows the continuation of a hedgin .....

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ween Foreign Currency A and Foreign Currency B were changed (ie a new band or rate was set), rebalancing the hedging relationship to reflect the new exchange rate would ensure that the hedging relationship would continue to meet the hedge effectiveness requirement for the hedge ratio in the new circumstances. In contrast, if there was a default on the currency derivative, changing the hedge ratio could not ensure that the hedging relationship would continue to meet that hedge effectiveness requi .....

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edged item. An entity analyses the sources of hedge ineffectiveness that it expected to affect the hedging relationship during its term and evaluates whether changes in the extent of offset are: (a) fluctuations around the hedge ratio, which remains valid (ie continues to appropriately reflect the relationship between the hedging instrument and the hedged item); or (b) an indication that the hedge ratio no longer appropriately reflects the relationship between the hedging instrument and the hedg .....

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tion around a constant hedge ratio (and hence the related hedge ineffectiveness) cannot be reduced by adjusting the hedge ratio in response to each particular outcome. Hence, in such circumstances, the change in the extent of offset is a matter of measuring and recognising hedge ineffectiveness but does not require rebalancing. B6.5.13 Conversely, if changes in the extent of offset indicate that the fluctuation is around a hedge ratio that is different from the hedge ratio that is currently used .....

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not) that could result in an accounting outcome that would be inconsistent with the purpose of hedge accounting. If the hedge ratio is adjusted, it also affects the measurement and recognition of hedge ineffectiveness because, on rebalancing, the hedge ineffectiveness of the hedging relationship must be determined and recognised immediately before adjusting the hedging relationship in accordance with paragraph B6.5.8. B6.5.14 Rebalancing means that, for hedge accounting purposes, after the star .....

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the hedge ratio that results from changes to the quantities of the hedging instrument or the hedged item that the entity actually uses would reflect an imbalance that would create hedge ineffectiveness that could result in an accounting outcome that would be inconsistent with the purpose of hedge accounting; or (b) an entity would retain quantities of the hedging instrument and the hedged item that it actually uses, resulting in a hedge ratio that, in new circumstances, would reflect an imbalanc .....

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e hedging instrument or hedged item of the previous hedging relationship as described in paragraph B6.5.28). B6.5.16 If a hedging relationship is rebalanced, the adjustment to the hedge ratio can be effected in different ways: (a) the weighting of the hedged item can be increased (which at the same time reduces the weighting of the hedging instrument) by: (i) increasing the volume of the hedged item; or (ii) decreasing the volume of the hedging instrument. (b) the weighting of the hedging instru .....

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volume of the hedging instrument can result in the entity retaining a derivative, but only part of it might remain a hedging instrument of the hedging relationship. This could occur if the rebalancing could be effected only by reducing the volume of the hedging instrument in the hedging relationship, but with the entity retaining the volume that is no longer needed. In that case, the undesignated part of the derivative would be accounted for at fair value through profit or loss (unless it was de .....

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ditional volume of the hedged item. These changes are measured starting from, and by reference to, the date of rebalancing instead of the date on which the hedging relationship was designated. For example, if an entity originally hedged a volume of 100 tonnes of a commodity at a forward price of ₹ 80 (the forward price at inception of the hedging relationship) and added a volume of 10 tonnes on rebalancing when the forward price was ₹ 90, the hedged item after rebalancing would compr .....

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no longer part of the hedging relationship. For example, if an entity originally hedged the price risk of a commodity using a derivative volume of 100 tonnes as the hedging instrument and reduces thatvolume by 10 tonnes on rebalancing, a nominal amount of 90 tonnes of the hedging instrument volume would remain (see paragraph B6.5.16 for the consequences for the derivative volume (ie the 10 tonnes) that is no longer a part of the hedging relationship). B6.5.19 Adjusting the hedge ratio by increas .....

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ence to, the date of rebalancing instead of the date on which the hedging relationship was designated. For example, if an entity originally hedged the price risk of a commodity using a derivative volume of 100 tonnes as the hedging instrument and added a volume of 10 tonnes on rebalancing, the hedging instrument after rebalancing would comprise a total derivative volume of 110 tonnes. The change in the fair value of the hedging instrument is the total change in the fair value of the derivatives .....

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urement of the changes in the value of the hedged item related to the volume that continues to be designated also remains unaffected. However, from the date of rebalancing, the volume by which the hedged item was decreased is no longer part of the hedging relationship. For example, if an entity originally hedged a volume of 100 tonnes of a commodity at a forward price of ₹ 80 and reduces that volume by 10 tonnes on rebalancing, the hedged item after rebalancing would be 90 tonnes hedged at .....

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of the hedging relationship shall be updated accordingly. Discontinuation of hedge accounting B6.5.22 Discontinuation of hedge accounting applies prospectively from the date on which the qualifying criteria are no longer met. B6.5.23 An entity shall not de-designate and thereby discontinue a hedging relationship that: (a) still meets the risk management objective on the basis of which it qualified for hedge accounting (ie the entity still pursues that risk management objective); and (b) continue .....

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nds to them. A risk management strategy is typically in place for a longer period and may include some flexibility to react to changes in circumstances that occur while that strategy is in place (for example, different interest rate or commodity price levels that result in a different extent of hedging). This is normally set out in a general document that is cascaded down through an entity through policies containing more specific guidelines. In contrast, the risk management objective for a hedg .....

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bt funding that sets ranges for the overall entity for the mix between variablerate and fixed-rate funding. The strategy is to maintain between 20 per cent and 40 per cent of the debt at fixed rates. The entity decides from time to time how to execute this strategy (ie where it positions itself within the 20 per cent to 40 per cent range for fixed-rate interest exposure) depending on the level of interest rates. If interest rates are low the entity fixes the interest for more debt than when inte .....

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hedged its variable-rate exposure, resulting in ₹ 60 of fixed-rate exposure. In this situation the risk management strategy itself remains unchanged. However, in contrast the entity s execution of that strategy has changed and this means that, for ₹ 20 of variable-rate exposure that was previously hedged, the risk management objective has changed (ie at the hedging relationship level). Consequently, in this situation hedge accounting must be discontinued for ₹ 20 of the previo .....

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res result from positions that frequently change, for example, the interest rate risk of an open portfolio of debt instruments. The addition of new debt instruments and thederecognition of debt instruments continuously change that exposure (ie it is different from simply running off a position that matures). This is a dynamic process in which both the exposure and the hedging instruments used to manage it do not remain the same for long. Consequently, an entity with such an exposure frequently a .....

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ty periods on the basis of their size and the hedging instruments that exist at that time. The discontinuation of hedge accounting in this situation reflects that those hedging relationships are established in such a way that the entity looks at a new hedging instrument and a new hedged item instead of the hedging instrument and the hedged item that were designated previously. The risk management strategy remains the same, but there is no risk management objective that continues for those previo .....

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lting receivables. Within that strategy the entity manages the foreign currency risk as a particular hedging relationship only up to the point of the recognition of the receivable. Thereafter, the entity no longer manages the foreign currency risk on the basis of that particular hedging relationship. Instead, it manages together the foreign currency risk from receivables, payables and derivatives (that do not relate to forecast transactions that are still pending) denominated in the same foreign .....

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managed within the same strategy but on a different basis. Conversely, if an entity had a different risk management objective and managed the foreign currency risk as one continuous hedging relationship specifically for that forecast sales amount and the resulting receivable until the settlement date, hedge accounting would continue until that date. B6.5.25 The discontinuation of hedge accounting can affect: (a) a hedging relationship in its entirety; or (b) a part of a hedging relationship (whi .....

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lation to the entire volume that was part of the hedging relationship); or (c) there is no longer an economic relationship between the hedged item and the hedging instrument or the effect of credit risk starts to dominate the value changes that result from that economic relationship. B6.5.27 A part of a hedging relationship is discontinued (and hedge accounting continues for its remainder) when only a part of the hedging relationship ceases to meet the qualifying criteria. For example: (a) on re .....

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is discontinued only for the volume of the hedged item whose occurrence is no longer highly probable. However, if an entity has a history of having designated hedges of forecast transactions and having subsequently determined that the forecast transactions are no longer expected to occur, the entity s ability to predict forecast transactions accurately is called into question when predicting similar forecast transactions. This affects the assessment of whether similar forecast transactions are .....

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aces it with a new hedging instrument. This means that the original hedging relationship failed to achieve the risk management objective and is hence discontinued in its entirety. The new hedging instrument is designated as the hedge of the same exposure that was hedged previously and forms a new hedging relationship. Hence, the changes in the fair value or the cash flows of the hedged item are measured starting from, and by reference to, the date of designation of the new hedging relationship i .....

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n can be considered as being related to a time period because its time value represents a charge for providing protection for the option holder over a period of time. However, the relevant aspect for the purpose of assessing whether an option hedges a transaction or time-period related hedged item are the characteristics of that hedged item, including how and when it affects profit or loss. Hence, an entity shall assess the type of hedged item (see paragraph 6.5.15(a)) on the basis of the nature .....

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tity hedges a commodity purchase, whether it is a forecast transaction or a firm commitment, against the commodity price risk and includes the transaction costs in the initial measurement of the inventory). As a consequence of including the time value of the option in the initial measurement of the particular hedged item, the time value affects profit or loss at the same time as that hedged item. Similarly, an entity that hedges a sale of a commodity, whether it is a forecast transaction or a fi .....

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ansaction that involves the notion of a transaction cost in accordance with (a)). For example, if commodity inventory is hedged against a fairvalue decrease for six months using a commodity option with a corresponding life, the time value of the option would be allocated to profit or loss (ie amortised on a systematic and rational basis) over that six-month period. Another example is a hedge of a net investment in a foreign operation that is hedged for 18 months using a foreign-exchange option, .....

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(a cap) is used to provide protection against increases in the interest expense on a floating rate bond, the time value of that cap is amortised to profit or loss over the same period over which any intrinsic value of the cap would affect profit or loss: (a) if the cap hedges increases in interest rates for the first three years out of a total life of the floating rate bond of five years, the time value of that cap is amortised over the first three years; or (b) if the cap is a forward start op .....

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erred to as a zero-cost collar ). In that case, an entity shall recognise any changes in time value in other comprehensive income, even though the cumulative change in time value over the total period of the hedging relationship is nil. Hence, if the time value of the option relates to: (a) a transaction related hedged item, the amount of time value at the end of the hedging relationship that adjusts the hedged item or that is reclassified to profit or loss (see paragraph 6.5.15(b)) would be nil .....

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on and the hedged item are not fully aligned, an entity shall determine the aligned time value, ie how much of the time value included in the premium (actual time value) relates to the hedged item (and therefore should be treated in accordance with paragraph 6.5.15). An entity determines the aligned time value using the valuation of the option that would have critical terms that perfectly match the hedged item. B6.5.33 If the actual time value and the aligned time value differ, an entity shall d .....

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of the hedging relationship, the actual time value is lower than the aligned time value, the entity shall determine the amount that is accumulated in a separate component of equity by reference to the lower of the cumulative change in fair value of: (i) the actual time value; and (ii) the aligned time value. Any remainder of the change in fair value of the actual time value shall be recognised in profit or loss. Accounting for the forward element of forward contracts and foreign currency basis .....

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see paragraphs 6.5.16 and 6.5.15(a)) on the basis of the nature of the hedged item (regardless of whether the hedging relationship is a cash flow hedge or a fair value hedge): (a) the forward element of a forward contract relates to a transaction related hedged item if the nature of the hedged item is a transaction for which the forward element has the character of costs of that transaction. An example is when the forward element relates to a hedged item that results in the recognition of an ite .....

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. Similarly, an entity that hedges a sale of a commodity denominated in a foreign currency against foreign currency risk, whether it is a forecast transaction or a firm commitment, would include the forward element as part of the cost that is related to that sale (hence, the forward element would be recognised in profit or loss in the same period as the revenue from the hedged sale). (b) the forward element of a forward contract relates to a time-period related hedged item if the nature of the h .....

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loss (ie amortised on a systematic and rational basis) over that six-month period. Another example is a hedge of a net investment in a foreign operation that is hedged for 18 months using a foreign-exchange forward contract, which would result in allocating the forward element of the forward contract over that 18-month period. B6.5.35 The characteristics of the hedged item, including how and when the hedged item affects profit or loss, also affect the period over which the forward element of a f .....

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, at the date on which the forward contract is designated as a hedging instrument, the forward element is nil. In that case, an entity shall recognise any fair value changes attributable to the forward element in other comprehensive income, even though the cumulative fair value change attributable to the forward element over the total period of the hedging relationship is nil. Hence, if the forward element of a forward contract relates to: (a) a transaction related hedged item, the amount in res .....

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. The forward element of a forward contract relates to the hedged item if the critical terms of the forward contract (such as the nominal amount, life and underlying) are aligned with the hedged item. Hence, if the critical terms of the forward contract and the hedged item are not fully aligned, an entity shall determine the aligned forward element, iehow much of the forward element included in the forward contract (actual forward element) relates to the hedged item (and therefore should be trea .....

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tual forward element is higher than that of the aligned forward element the entity shall: (i) determine the amount that is accumulated in a separate component of equity on the basis of the aligned forward element; and (ii) account for the differences in the fair value changes between the two forward elements in profit or loss. (b) if, at inception of the hedging relationship, the absolute amount of the actual forward element is lower than that of the aligned forward element, the entity shall det .....

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of that financial instrument as the hedging instrument (see paragraph 6.2.4(b)), the application guidance in paragraphs B6.5.34-B6.5.38 applies to the foreign currency basis spread in the same manner as it is applied to the forward element of a forward contract. Hedge of a group of items (Section 6.6) Hedge of a net position Eligibility for hedge accounting and designation of a net position B6.6.1 A net position is eligible for hedge accounting only if an entity hedges on a net basis for risk ma .....

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currency is its local currency, has a firm commitment to pay FC150,000 for advertising expenses in nine months time and a firm commitment to sell finished goods for FC150,000 in 15 months time. Entity A enters into a foreign currency derivative that settles in nine months time under which it receives FC100 and pays ₹ 70. Entity A has no other exposures to FC. Entity A does not manage foreign currency risk on a net basis. Hence, Entity A cannot apply hedge accounting for a hedging relations .....

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r nine months. Normally, this hedged position would not be reflected in the financial statements because the transactions are recognised in different reporting periods in the future. The nil net position would be eligible for hedge accounting only if the conditions in paragraph 6.6.6 are met. B6.6.4 When a group of items that constitute a net position is designated as a hedged item, an entity shall designate the overall group of items that includes the items that can make up the net position. An .....

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that give rise to the net position so that the entity is able to comply with the requirements for the accounting for qualifying hedging relationships. Application of the hedge effectiveness requirements to a hedge of a net position B6.6.5 When an entity determines whether the hedge effectiveness requirements of paragraph 6.4.1(c) are met when it hedges a net position, it shall consider the changes in the value of the items in the net position that have a similar effect as the hedging instrument .....

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e change on the forward exchange contract together with the foreign currency risk related changes in the value of the firm sale commitments; and (b) the foreign currency risk related changes in the value of the firm purchase commitments. B6.6.6 Similarly, if in the example in paragraph B6.6.5 the entity had a nil net position it would consider the relationship between the foreign currency risk related changes in the value of the firm sale commitments and the foreign currency risk related changes .....

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et position can only be eligible as a hedged item if it is a hedge of foreign currency risk and the designation of that net position specifies the reporting period in which the forecast transactions are expected to affect profit or loss and also specifies their nature and volume. B6.6.8 For example, an entity has a net position that consists of a bottom layer of FC100 of sales and a bottom layer of FC150 of purchases. Both sales and purchases are denominated in the same foreign currency. In orde .....

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duct B. If those sales volumes are expected to affect profit or loss in different reporting periods, the entity would include that in the documentation, for example, the first FC70 from sales of Product A that are expected to affect profit or loss in the first reporting period and the first FC30 from sales of Product B that are expected to affect profit or loss in the second reporting period. The entity also documents that the bottom layer of the purchases (FC150) is made up of purchases of the .....

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urchases of Machinery Type A that are expected to affect profit or loss from the third reporting period over the next ten reporting periods; (b) the first FC40 of purchases of Machinery Type B that are expected to affect profit or loss from the fourth reporting period over the next 20 reporting periods; and (c) the first FC50 of purchases of Raw Material A that are expected to be received in the third reporting period and sold, ie affect profit or loss, in that and the next reporting period. Spe .....

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ctively, its documentation of the forecast purchase volume for Machinery Type A would disaggregate that volume by which of those depreciation patterns will apply. B6.6.9 For a cash flow hedge of a net position, the amounts determined in accordance with paragraph 6.5.11 shall include the changes in the value of the items in the net position that have a similar effect as the hedging instrument in conjunction with the fair value change on the hedging instrument. However, the changes in the value of .....

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0. When determining the amounts that are recognised in the cash flow hedge reserve in accordance with paragraph 6.5.11(a)-6.5.11(b), the entity compares: (a) the fair value change on the forward exchange contract together with the foreign currency risk related changes in the value of the highly probable forecast sales; with (b) the foreign currency risk related changes in the value of the highly probable forecast purchases. However, the entity recognises only amounts related to the forward excha .....

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ue of the highly probable forecast sales with the foreign currency risk related changes in the value of the highly probable forecast purchases. However, those amounts are recognised only once the related forecast transactions are recognised in the financial statements. Layers of groups of items designated as the hedged item B6.6.11 For the same reasons noted in paragraph B6.3.19, designating layer components of groups of existing items requires the specific identification of the nominal amount o .....

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a cash flow hedge, they might affect different line items in the statement of profit andloss . The presentation of hedging gains or losses in that statement depends on the group of items. B6.6.14 If the group of items does not have any offsetting risk positions (for example, a group of foreign currency expenses that affect different line items in the statement of profit and loss that are hedged for foreign currency risk) then the reclassified hedging instrument gains or losses shall be apportio .....

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the statement of profit and loss.Consider, for example, a hedge of the foreign currency risk of a net position of foreign currency sales of FC100 and foreign currency expenses of FC80 using a forward exchange contract for FC20. The gain or loss on the forward exchange contract that is reclassified from the cash flow hedge reserve to profit or loss (when the net position affects profit or loss) shall be presented in a separate line item from the hedged sales and expenses. Moreover, if the sales o .....

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is reclassified to profit or loss and presented as a separate line item from those that include the hedged expenses, which are measured at the spot exchange rate in accordance with Ind AS 21. B6.6.16 For some types of fair value hedges, the objective of the hedge is not primarily to offset the fair value change of the hedged item but instead to transform the cash flows of the hedged item. For example, an entity hedges the fair value interest rate risk of a fixed-rate debt instrument using an in .....

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and loss. This is to avoid the grossing up of a single instrument s net gains or losses into offsetting gross amounts and recognising them in different line items (for example, this avoids grossing up a net interest receipt on a single interest rate swap into gross interest revenue and gross interest expense). Effective date and transition (Chapter 7) Transition (Section 7.2) Financial assets held for trading B7.2.1 At the date of initial application of this Standard, an entity must determine wh .....

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ate the credit risk on initial recognition by considering all reasonable and supportable information that is available without undue cost or effort. An entity is not required to undertake an exhaustive search for information when determining, at the date of transition, whether there have been significant increases in credit risk since initial recognition. If an entity is unable to make this determination without undue cost or effort paragraph 7.2.20 applies. B7.2.3 In order to determine the loss .....

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portfolio information, in accordance with paragraphs B5.5.1-B5.5.6. B7.2.4 An entity with little historical information may use information from internal reports and statistics (that may have been generated when deciding whether to launch a new product), information about similar products or peer group experience for comparable , if relevant. Definitions (Appendix A) Derivatives BA.1 Typical examples of derivatives are futures and forward, swap and option contracts. A derivative usually has a n .....

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to a notional amount. For example, a contract may require a fixed payment ofRs.1,000 if six-month LIBOR increases by 100 basis points. Such a contract is a derivative even though a notional amount is not specified. BA.2 The definition of a derivative in this Standard includes contracts that are settled gross by delivery of the underlying item (eg a forward contract to purchase afixed rate debt instrument). An entity may have a contract to buy or sell a nonfinancial item that can be settled net i .....

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a designation in accordance with paragraph 2.5 (see paragraphs 2.4-2.7). BA.3 One of the defining characteristics of a derivative is that it has an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. An option contract meets that definition because the premium is less than the investment that would be required to obtain the underlying financial instrument to which the option is .....

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or such regular way contracts (see paragraphs 3.1.2 andB3.1.3-B3.1.6). BA.5 The definition of a derivative refers to non-financial variables that are not specific to a party to the contract. These include an index of earthquake losses in a particular region and an index of temperatures in a particular city. Non-financial variables specific to a party to the contract include the occurrence or non-occurrence of a fire that damages or destroys an asset of a party to the contract. A change in the fa .....

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eld for trading BA.6 Trading generally reflects active and frequent buying and selling, and held for trading generally are used with the objective of generating a profit from short-term fluctuations in price or dealer s margin. BA.7 Financial liabilities held for trading include: (a) derivative liabilities that are not accounted for as hedging instruments; (b) obligations to deliver financial assets borrowed by a short seller (ie an entity that sells financial assets it has borrowed and does not .....

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liability one that is held for trading. 2Ind AS103 addresses the acquisition of contracts with embedded derivatives in a business combination. 3In this Standard monetary amounts are denominated in Indian Rupees (Rs.) and foreign currency units (FC). Appendix C Hedges of a Net Investment in a Foreign Operation (This appendix is an integral part of Ind AS 109) Background 1 Many reporting entities have investments in foreign operations (as defined in Ind AS 21 paragraph 8). Such foreign operations .....

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e foreign currency risk arising from a net investment in a foreign operation will apply only when the net assets of that foreign operation are included in the financial statements.4 The item being hedged with respect to the foreign currency risk arising from the net investment in a foreign operation may be an amount of net assets equal to or less than the carrying amount of the net assets of the foreign operation. 3 Ind AS 109 requires the designation of an eligible hedged item and eligible hedg .....

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of foreign currency risks. This Appendix provides guidance on identifying the foreign currency risks that qualify as a hedged risk in the hedge of a net investment in a foreign operation. 5 Ind AS 109 allows an entity to designate either a derivative or a non-derivative financial instrument (or a combination of derivative and non-derivative ) as hedging instruments for foreign currency risk. This Appendix provides guidance on where, within a group, hedging instruments that are hedges of a net in .....

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nt when the parent disposes of the foreign operation. This Appendix provides guidance on how an entity should determine the amounts to be reclassified from equity to profit or loss for both the hedging instrument and the hedged item. Scope 7 This Appendix applies to an entity that hedges the foreign currency risk arising from its net investments in foreign operations and wishes to qualify for hedge accounting in accordance with Ind AS 109. For convenience this Appendix refers to such an entity a .....

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ons may be held directly by a parent entity or indirectly by its subsidiary or subsidiaries. The issues addressed in this Appendix are: (a) the nature of the hedged risk and the amount of the hedged item for which a hedging relationship may be designated: (i) whether the parent entity may designate as a hedged risk only the foreign exchange differences arising from a difference between the functional currencies of the parent entity and its foreign operation, or whether it may also designate as t .....

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may also include any foreign exchange differences between the functional currency of the foreign operation and any intermediate or ultimate parent entity (ie whether the fact that the net investment in the foreign operation is held through an intermediate parent affects the economic risk to the ultimate parent). (b) where in a group the hedging instrument can be held: (i) whether a qualifying hedge accounting relationship can be established only if the entity hedging its net investment is a par .....

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amounts from the parent entity s foreign currency translation reserve in respect of the hedging instrument and in respect of that foreign operation should be reclassified from equity to profit or loss in the parent entity s consolidated financial statements; (ii) whether the method of consolidation affects the determination of the amounts to be reclassified from equity to profit or loss. Accounting Principle Nature of the hedged risk and amount of the hedged item for which a hedging relationshi .....

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he carrying amount of the net assets of a foreign operation that may be designated as the hedged item in the consolidated financial statements of a parent depends on whether any lower level parent of the foreign operation has applied hedge accounting for all or part of the net assets of that foreign operation and that accounting has been maintained in the parent s consolidated financial statements. 12 The hedged risk may be designated as the foreign currency exposure arising between the function .....

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n the consolidated financial statements. Therefore, if the same net assets of a foreign operation are hedged by more than one parent entity within the group (for example, both a direct and an indirect parent entity) for the same risk, only one hedging relationship will qualify for hedge accounting in the consolidated financial statements of the ultimate parent. A hedging relationship designated by one parent entity in its consolidated financial statements need not be maintained by another higher .....

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) may be held by any entity or entities within the group, as long as the designation, documentation and effectiveness requirements of Ind AS 109 paragraph 6.4.1 that relate to a net investment hedge are satisfied. In particular, the hedging strategy of the group should be clearly documented because of the possibility of different designations at different levels of the group. 15 For the purpose of assessing effectiveness, the change in value of the hedging instrument in respect of foreign exchan .....

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ent is recognised in profit or loss or in other comprehensive income. As part of the application of hedge accounting, the total effective portion of the change is included in other comprehensive income. The assessment of effectiveness is not affected by whether the hedging instrument is a derivative or a non-derivative instrument or by the method of consolidation. Disposal of a hedged foreign operation 16 When a foreign operation that was hedged is disposed of, the amount reclassified to profit .....

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of a parent in respect of the net investment in that foreign operation in accordance with Ind AS 21 paragraph 48 is the amount included in that parent s foreign currency translation reserve in respect of that foreign operation. In the ultimate parent s consolidated financial statements, the aggregate net amount recognised in the foreign currency translation reserve in respect of all foreign operations is not affected by the consolidation method. However, whether the ultimate parent uses the dire .....

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on had been used. Making this adjustment is not required by Ind AS 21. However, it is an accounting policy choice that should be followed consistently for all net investments. 4This will be the case for consolidated financial statements, financial statements in which investments such as associates & joint ventures are accounted for using the equity method, and financial statements that include a branch or a joint operation as defined in Ind AS 111, Joint Arrangements. 5The direct method is t .....

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pendix C This application guidance is an integral part of the Appendix C. AG1 This application guidance illustrates the application of the Appendix C using the corporate structure illustrated below. In all cases the hedging relationships described would be tested for effectiveness in accordance with Ind AS 109, although this testing is not discussed in this appendix. Parent, being the ultimate parent entity, presents its consolidated financial statements in its functional currency of euro (EUR). .....

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ent can hedge its net investment in each of Subsidiaries A, B and C for the foreign exchange risk between their respective functional currencies (Japanese yen (JPY), pounds sterling and US dollars) and euro. In addition, Parent can hedge the USD/GBP foreign exchange risk between the functional currencies of Subsidiary B and Subsidiary C. In its consolidated financial statements, Subsidiary B can hedge its net investment in Subsidiary C for the foreign exchange risk between their functional curre .....

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external borrowing of US$300 million. The net assets of Subsidiary A at the start of the reporting period are ¥400,000 million including the proceeds of the external borrowing of US$300 million. AG4 The hedged item can be an amount of net assets equal to or less than the carrying amount of Parent s net investment in Subsidiary C (US$300 million) in its consolidated financial statements. In its consolidated financial statements Parent can designate the US$300 million external borrowing in Su .....

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unting. AG5 In the absence of hedge accounting, the total USD/EUR foreign exchange difference on the US$300 million external borrowing in Subsidiary A would be recognised in Parent s consolidated financial statements as follows: · USD/JPY spot foreign exchange rate change, translated to euro, in profit or loss, and · JPY/EUR spot foreign exchange rate change in other comprehensive income. Instead of the designation in paragraph AG4, in its consolidated financial statements Parent c .....

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JPY spot foreign exchange rate change, translated to euro, in profit or loss, and · JPY/EUR spot foreign exchange rate change in other comprehensive income. AG6 Parent cannot designate the US$300 million external borrowing in Subsidiary A as a hedge of both the EUR/USD spot foreign exchange risk and the GBP/USD spot foreign exchange risk in its consolidated financial statements. A single hedging instrument can hedge the same designated risk only once. Subsidiary B cannot apply hedge accou .....

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olidated financial statements in the absence of hedge accounting. Both amounts are included for the purpose of assessing the effectiveness of the hedge designated in paragraph AG4 because the change in value of both the hedging instrument and the hedged item are computed by reference to the euro functional currency of Parent against the US dollar functional currency of Subsidiary C, in accordance with the hedge documentation. The method of consolidation (ie direct method or step-by-step method) .....

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lue in respect of foreign exchange risk that was recognised in other comprehensive income as the effective portion of the hedge; and (b) in respect of the US$300 million net investment in Subsidiary C, the amount determined by the entity s consolidation method. If Parent uses the direct method, its FCTR in respect of Subsidiary C will be determined directly by the EUR/USD foreign exchange rate. If Parent uses the step-by-step method, its FCTR in respect of Subsidiary C will be determined by the .....

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han one foreign operation (paragraphs 11, 13 and 15) AG9 The following examples illustrate that in the consolidated financial statements of Parent, the risk that can be hedged is always the risk between its functional currency (euro) and the functional currencies of Subsidiaries B and C. No matter how the hedges are designated, the maximum amounts that can be effective hedges to be included in the foreign currency translation reserve in Parent s consolidated financial statements when both foreig .....

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h to hedge the foreign exchange risk in relation to its net investment in Subsidiary B as well as that in relation to Subsidiary C. Assume that Parent holds suitable hedging instruments denominated in US dollars and pounds sterling that it could designate as hedges of its net investments in Subsidiary B and Subsidiary C. The designations Parent can make in its consolidated financial statements include, but are not limited to, the following: (a) US$300 million hedging instrument designated as a h .....

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C with the risk being the spot foreign exchange exposure (GBP/USD) between Subsidiary B and Subsidiary C and up to £500 million hedging instrument designated as a hedge of £500 million of the net investment in Subsidiary B with the risk being the spot foreign exchange exposure (EUR/GBP) between Parent and Subsidiary B. AG11 The EUR/USD risk from Parent s net investment in Subsidiary C is a different risk from the EUR/GBP risk from Parent s net investment in Subsidiary B. However, in .....

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al statements. AG12 In the case described in paragraph AG10(b), if Parent designates the hedged risk as the spot foreign exchange exposure (GBP/USD) between Subsidiary B and Subsidiary C, only the GBP/USD part of the change in the value of its US$300 million hedging instrument is included in Parent s foreign currency translation reserve relating to Subsidiary C. The remainder of the change (equivalent to the GBP/EUR change on £159 million) is included in Parent s consolidated profit or los .....

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-company loan denominated in pounds sterling. Because both its assets and liabilities increased by £159 million, Subsidiary B s net assets are unchanged. Subsidiary B could designate the external debt as a hedge of the GBP/USD risk of its net investment in Subsidiary C in its consolidated financial statements. Parent could maintain Subsidiary B s designation of that hedging instrument as a hedge of its US$300 million net investment in Subsidiary C for the GBP/USD risk (see paragraph 13) an .....

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dated financial statements by the USD hedging instrument, not the entire EUR/USD risk. Therefore, the entire EUR/GBP risk from Parent s £500 million net investment in Subsidiary B may be hedged in the consolidated financial statements of Parent. AG14 However, the accounting for Parent s £159 million loan payable to Subsidiary B must also be considered. If Parent s loan payable is not considered part of its net investment in Subsidiary B because it does not satisfy the conditions in I .....

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p designated by Subsidiary B, Parent could designate the US$300 million external borrowing held by Subsidiary B as a hedge of its US$300 million net investment in Subsidiary C for the EUR/USD risk and designate the GBP hedging instrument it holds itself as a hedge of only up to £341 million of the net investment in Subsidiary B. In this case the effectiveness of both hedges would be computed by reference to Parent s functional currency (euro). Consequently, both the USD/GBP change in value .....

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iabilities with Equity Instruments (This appendix is an integral part of Ind AS 109) International Financial Background 1 A debtor and creditor might renegotiate the terms of a financial liability with the result that the debtor extinguishes the liability fully or partially by issuing equity instruments to the creditor. These transactions are sometimes referred to as debt for equity swaps . Scope 2 This Appendix addresses the accounting by an entity when the terms of a financial liability are re .....

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er the transaction and the substance of the transaction includes an equity distribution by, or contribution to, the entity. (c) extinguishing the financial liability by issuing equity shares is in accordance with the original terms of the financial liability. Issues 4 This Appendix addresses the following issues: (a) Are an entity s equity instruments issued to extinguish all or part of a financial liability consideration paid in accordance with paragraph 3.3.3 ofInd AS 109? (b) How should an en .....

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hall remove a financial liability (or part of a financial liability) from its balance sheet when, and only when, it is extinguished in accordance with paragraph 3.3.1 of Ind AS 109. 6 When equity instruments issued to a creditor to extinguish all or part of a financial liability are recognised initially, an entity shall measure them at the fair value of the equity instruments issued, unless that fair value cannot be reliably measured. 7 If the fair value of the equity instruments issued cannot b .....

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If part of the consideration paid does relate to a modification of the terms of the remaining part of the liability, the entity shall allocate the consideration paid between the part of the liability extinguished and the part of the liability that remains outstanding. The entity shall consider all relevant facts and circumstances relating to the transaction in making this allocation. 9 The difference between the carrying amount of the financial liability (or part of a financial liability) exting .....

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ether the terms of that remaining liability have been substantially modified. If the remaining liability has been substantially modified, the entity shall account for the modification as the extinguishment of the original liability and the recognition of a new liability as required by paragraph 3.3.2 of Ind AS 109. 11 An entity shall disclose a gain or loss recognised in accordance with paragraphs 9 and 10 as a separate line item in profit or loss or in the notes. Appendix E References to matter .....

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ntracts with Customers.] 3. Appendix B, Evaluating the Substance of Transactions Involving the Legal Form of Lease contained in Ind AS 17, Leases. Appendix 1 Note: This Appendix is not a part of this Indian Accounting Standard. The purpose of this Appendix is only to bring out the differences, if any, between Indian Accounting Standard (Ind AS) 109 and the corresponding International Financial reporting Standard (IFRS) 9, , IFRIC16, Hedges of Net Investment in a Foreign Operation and IFRIC 19, E .....

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s as provided in IFRS 9 has been removed in Ind AS 109. Accordingly, paragraph 6.1.3 has been deleted and following paragraphs have been modified: (i) Paragraph 5.2.3 (ii) Paragraph 5.3.2 (iii) Paragraphs 5.7.1 (iv) Paragraph 5.7.2-5.7.3 36[3. Paragraphs 7.1.1 to 7.1.3 related to effective date have not been included in Ind AS 109 as these paragraphs are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IFRS 9, these paragraph numbers are retaine .....

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e rights that Ind AS115 specifies are accounted for in accordance with this Standard for the purposes of recognising impairment gains or losses. 3. Substituted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, (ii) the amount initially recognised (see paragraph 5.1.1) less, when appropriate, the cumulative amount of income recognised in accordance with the principles of Ind AS115. 4. Substituted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, ( .....

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al liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. 6. Omitted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, 5.1.3 Despite the requirement in paragraph 5.1.1, at initial recognition, an entity shall measure trade receivables at their transaction price (as defined in Ind AS 115) if the trade receivables do not contain a significant financing c .....

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irment requirements apply in accordance with paragraphs 2.1(g), 4.2.1(c) or 4.2.1(d). 8. Substituted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, 5.5.15 Despite paragraphs 5.5.3 and 5.5.5, an entity shall always measure the loss allowance at an amount equal to lifetime expected credit losses for: (a) trade receivables or contract assets that result from transactions that are within the scope of Ind AS115, and that: (i) do not contain a significant financing componen .....

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ts. (b) lease receivables that result from transactions that are within the scope of Ind AS 17, if the entity chooses as its accounting policy to measure the loss allowance at an amount equal to lifetime expected credit losses. That accounting policy shall be applied to all lease receivables but may be applied separately to finance and operating lease receivables. 9. Omitted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, Those rights that Ind AS115 Revenue from Contra .....

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t risk;1 (b) equity instrument; (c) fair value; (d) financial asset; (e) financial instrument; (f) financial liability; (g) transaction price. 11. Substituted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, B2.2 This Standard does not change the requirements relating to royalty agreements based on the volume of sales or service revenues that are accounted for under Ind AS115 Revenue from Contracts with Customers. 12. Substituted vide F. No. 01/01/2009-CL-V(Part) - Date .....

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e of goods. 14. Substituted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, (a) If a guarantee provided by an entity to pay for default losses on a transferred asset prevents the transferred asset from being derecognised to the extent of the continuing involvement, the transferred asset at the date of the transfer is measured at the lower of (i) the carrying amount of the asset and (ii) the maximum amount of the consideration received in the transfer that the entity co .....

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1/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, B5.4.3 Fees that are not an integral part of the effective interest rate of a financial instrument and are accounted for in accordance with Ind AS115 include: (a) fees charged for servicing a loan; (b) commitment fees to originate a loan when the loan commitment is not measured in accordance with paragraph 4.2.1(a) and it is unlikely that a specific lending arrangement will be entered into; and (c) loan syndication fees received by an .....

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Dated 28-03-2018, w.e.f. 1st day of April, 2018, before it was read as, "1[(j) rights and obligations within the scope of Ind AS 11, Construction Contracts, and Ind AS 18, Revenue, that are , except for those that Ind AS 11 and Ind AS 18 specify are accounted for in accordance with this Standard.]" 19. Substituted vide F. No. 01/01/2009-CL-V(Part VI) - Dated 28-03-2018, w.e.f. 1st day of April, 2018, before it was read as, "2[2.2 The impairment requirements of this Standard shall .....

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1. Substituted vide F. No. 01/01/2009-CL-V(Part VI) - Dated 28-03-2018, w.e.f. 1st day of April, 2018, before it was read as, "4[(ii) the amount initially recognised (see paragraph 5.1.1) less, when appropriate, the cumulative amount of income recognised in accordance with the principles of Ind AS 18.]" 22. Substituted vide F. No. 01/01/2009-CL-V(Part VI) - Dated 28-03-2018, w.e.f. 1st day of April, 2018, before it was read as, "5[5.1.1. At initial recognition, an entity shall mea .....

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pril, 2018, before it was read as, "7[5.5.1 An entity shall recognise a loss allowance for expected credit losses on a financial asset that is measured in accordance with paragraphs 4.1.2 or 4.1.2A, a lease receivable, a loan commitment and a financial guarantee contract to which the impairment requirements apply in accordance with paragraphs 2.1(g), 4.2.1(c) or 4.2.1(d).]" 25. Substituted vide F. No. 01/01/2009-CL-V(Part VI) - Dated 28-03-2018, w.e.f. 1st day of April, 2018, before it .....

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e loss allowance at an amount equal to lifetime expected credit losses. That accounting policy shall be applied to all lease receivables but may be applied separately to finance and operating lease receivables.]" 26. Inserted vide F. No. 01/01/2009-CL-V(Part VI) - Dated 28-03-2018, w.e.f. 1st day of April, 2018 27. Substituted vide F. No. 01/01/2009-CL-V(Part VI) - Dated 28-03-2018, w.e.f. 1st day of April, 2018, before it was read as, "contract assets 9[***]" 28. Substituted vide .....

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2009-CL-V(Part VI) - Dated 28-03-2018, w.e.f. 1st day of April, 2018, before it was read as, "11[B2.2 This Standard does not change the requirements relating to royalty agreements based on the volume of sales or service revenues that are accounted for under Ind AS 18, Revenue.]" 30. Substituted vide F. No. 01/01/2009-CL-V(Part VI) - Dated 28-03-2018, w.e.f. 1st day of April, 2018, before it was read as, "12[(ii) the amount initially recognised less, when appropriate, the cumulativ .....

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Dated 28-03-2018, w.e.f. 1st day of April, 2018, before it was read as, "B3.2.1 The followinge e flow chart illustrates thvaluation of whether and to what extent a financial asset is derecognised." 33. Substituted vide F. No. 01/01/2009-CL-V(Part VI) - Dated 28-03-2018, w.e.f. 1st day of April, 2018, before it was read as, "14[(a) If a guarantee provided by an entity to pay for default losses on a transferred asset prevents the transferred asset from being derecognised to the exte .....

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