Since 1977

FAR OCAMPO/CABARLES/SOLIMAN/OCAMPO
FAR.2830 –Financial Liabilities Summary (DIY) MAY 2020

1. Which statement is incorrect regarding PFRS 9? 7. Which of the following liabilities is a financial liability?
a. The objective of this PFRS is to establish principles a. Deferred revenue.
for the financial reporting of financial assets and b. A warranty obligation.
financial liabilities that will present relevant and c. A constructive obligation.
useful information to users of financial statements d. An obligation to deliver own shares worth a fixed
for their assessment of the amounts, timing and amount of cash.
uncertainty of an entity’s future cash flows.
b. An entity shall apply this PFRS to all items within 8. Financial liabilities exclude
the scope of PAS 39 Financial Instruments: a. Bank overdraft
Recognition and Measurement. b. Debenture issued by an entity requiring it to make
c. An entity shall apply this Standard retrospectively, annual interest payments in perpetuity
in accordance with PAS 8 Accounting Policies, c. Note payable in government bonds
Changes in Accounting Estimates and Errors, d. Payments under operating lease that are not yet
except as specified in the Standard. due
d. None of these.
9. Which of the following is most likely to be classified as
2. PFRS 9 permitted which of the following requirements financial liability?

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to be applied without applying the other requirements a. Ordinary shares.
at the same time? b. Non-cumulative, non-redeemable preference

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a. The classification and measurement for financial
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assets. c. Cumulative, redeemable preference shares at the
b. The expected credit loss model for impairment. option of the holder.

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c. The general hedge accounting requirements. d. Cumulative, redeemable preference shares at the
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d. The requirements related to the fair value option option of the issuer.
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for financial liabilities that address own credit risk.

10. Which of the following instruments would not be
3. PFRS 9 applies to classified as a financial liability?
a. Obligations under leases a. A preference share that will be redeemed by the
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b. Obligations under employee benefit plans issuer for a fixed amount of cash on a future date
c. Obligations under insurance contracts (i.e., the entity has an outstanding share that it
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d. Some loan commitments. will repurchase at a future date).

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b. A contract for the delivery of as many of the

4. The following loan commitments are within the scope entity's ordinary shares as are equal in value to
of PFRS 9, except P1,000,000 on a future date (i.e., the entity will
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a. Loan commitments that the entity designates as issue a variable number of own shares in return for
financial liabilities at fair value through profit or cash at a future date).
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loss. c. A written call option that gives the holder the right
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b. Loan commitments that can be settled net in cash to purchase a fixed number of the entity's ordinary
or by delivering or issuing another financial shares in return for a fixed price (i.e., the entity
instrument. would issue a fixed number of own shares in return
c. Commitments to provide a loan at a below-market for cash, if the option is exercised by the holder, at
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interest rate. a future date).

d. Commitments to provide mortgage construction d. An issued perpetual debt instrument (i.e., a debt
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loan that is to be paid out in installments in line instrument for which interest will be paid for all
with the progress of construction. eternity, but the principal will not be repaid).

5. Which of the following represents a liability? 11. At what amount is a financial liability measured on
a. The obligation to pay for goods that a company initial recognition?
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expects to order from suppliers next year. a. Fair value

b. The obligation to provide goods that customers b. Fair value plus transaction costs
have ordered and paid for during the current year. c. Fair value minus transaction costs, for financial
c. The obligation to pay interest on a five-year note liabilities measured not at fair value through profit
payable that was issued the last day of the current or loss.
year. d. Amortized cost
d. The obligation to distribute shares of a company's
own common stock next year as a result of a stock 12. An entity shall classify all financial liabilities as
dividend declared near the end of the current year. subsequently measured at amortized cost using the
effective interest method, except
6. Which of the following does not meet the definition of a a. Financial liabilities at fair value through profit or
liability? loss.
a. The signing of a three-year employment contract b. Financial liabilities that arise when a transfer of a
at a fixed annual salary financial asset does not qualify for derecognition or
b. An obligation to provide goods or services in the when the continuing involvement approach applies.
future c. Financial guarantee contracts.
c. A note payable with no specified maturity date d. All of the above.
d. An obligation that is estimated in amount

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13. A contract that requires the issuer to make specified 20. Which statement is incorrect regarding the application
payments to reimburse the holder for a loss it incurs of the effective interest method?
because a specified debtor fails to make payment a. Fees that are an integral part of the effective
when due in accordance with the original or modified interest rate of a financial instrument are treated
terms of a debt instrument is a (an) as an adjustment to the effective interest rate,
a. Financial guarantee contract unless the financial instrument is measured at fair
b. Insurance contract value, with the change in fair value being
c. Derivative contract recognized in profit or loss.
d. Hybrid contract b. If the financial instrument is measured at fair
value, with the change in fair value being
14. PFRS 9 requires financial guarantee contract within its recognized in profit or loss, the fees are recognized
scope to be measured subsequently at as revenue or expense when the instrument is
a. The loss allowance. initially recognized.
b. The amount initially recognized less, when c. Fees that are not an integral part of the effective
appropriate, cumulative amount of income interest rate of a financial instrument are
recognized in accordance with PFRS 15. accounted for in accordance with PFRS 15
c. The higher of a and b. d. The description of fees for financial services is
d. The lower of a and b. always indicative of the nature and substance of
the services provided.
15. Guarantees that require payments in response to
changes in a specified credit rating or credit index are 21. An entity may reclassify financial liabilities
considered subsequently measured at
a. Financial guarantee contracts a. Amortized cost.
b. Insurance contracts b. Fair value through profit or loss

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c. Derivative contracts c. Fair value through OCI
d. Hybrid contracts d. None of the above.

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as held for trading?
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16. Which of the following derivatives should be classified 22. Which statement is incorrect regarding derecognition
of a financial liability?

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a. A derivative that is a financial guarantee contract. a. An entity shall remove a financial liability from its
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b. A derivative that is designated and effective statement of financial position when, and only
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hedging instrument. when, it is extinguished.

c. A derivative that is for speculation. b. A financial liability is extinguished when the debtor
d. All of the above. either discharges the liability by paying the creditor
or is legally released from primary responsibility
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17. An entity shall present in profit or loss all fair value for the liability.
gains and losses on the following, except c. Payment to a third party, including a trust
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a. Loan commitments and financial guarantee (sometimes called ‘in-substance defeasance’), does
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contracts that are designated as at fair value not, by itself, relieve the debtor of its primary
through profit or loss. obligation to the creditor, in the absence of legal
b. Financial liabilities held for trading. release.
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c. Derivatives that are liabilities. d. If an issuer of a debt instrument repurchases that

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d. Financial liability designated at fair value through instrument, the debt is not extinguished if the
profit or loss with respect to change in fair value issuer is a market maker in that instrument or
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that is attributable to changes in credit risk of that intends to resell it in the near term.
liability.
23. In a debt extinguishment in which the debt is settled
18. The effective-interest method of amortizing discount by a transfer of assets with a carrying amount less
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on financial liabilities than the carrying amount of the debt, the debtor
a. Is another name for the straight-line method. would recognize
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b. Is needed to determine the amount of cash to be a. No gain or loss on the settlement.

paid to bondholders at each interest date. b. A gain on the settlement.
c. Is too complicated for practical use. c. A loss on the settlement.
d. Uses a constant rate of interest. d. None of these.
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19. When interest expense is calculated using the 24. An entity shall disclose a gain or loss recognized in
effective-interest amortization method, interest debt for equity swaps as a separate line item in
expense (assuming that interest is paid annually) a. Profit or loss
always equals the b. The notes to financial statements.
a. Actual amount of interest paid. c. Other comprehensive income
b. Book value of the bonds multiplied by the stated d. Either a or b
interest rate.
c. Book value of the bonds multiplied by the effective
interest rate.
d. Maturity value of the bonds multiplied by the
effective interest rate.

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25. In a debt settlement in which the debt is continued 29. Which statement is incorrect regarding accounting for
with substantially modified terms, a gain should be a compound instrument?
recognized at the date of settlement whenever the a. The issuer shall classify the liability and equity
carrying amount of the debt is components of a compound instrument separately
a. Less than the total future cash flows. as financial liabilities, financial assets, or equity
b. Less than the present value of the future cash instruments.
flows discounted using the effective interest rate b. A bond or similar instrument convertible by the
computed at initial recognition. holder into a fixed number of ordinary shares of
c. Greater than the present value of the future cash the entity is a compound financial instrument.
flows discounted using the prevailing interest rate c. The sum of the carrying amounts assigned to the
on the date of settlement. liability and equity components on initial
d. Greater than the present value of the future cash recognition is always equal to the fair value that
flows discounted using the effective interest rate would be ascribed to the instrument as a whole.
computed at initial recognition. d. Classification of the liability and equity components
of a convertible instrument is revised as a result of
26. When the interest payment dates of a bond are May 1 a change in the likelihood that a conversion option
and November 1, and a bond issue is sold on June 1, will be exercised.
the amount of cash received by the issuer will be
a. Decreased by accrued interest from June 1 to 30. How are the proceeds from issuing a compound
November 1. instrument allocated between the liability and equity
b. Decreased by accrued interest from May 1 to June components?
1. a. First, the liability component is measured at fair
c. Increased by accrued interest from June 1 to value, and then the remainder of the proceeds is
November 1. allocated to the equity component (with-and-

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d. Increased by accrued interest from May 1 to June without method).
1. b. First, the equity component is measured at fair

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27. When bonds are sold at a premium and the effective allocated to the liability component (with-and-
interest method is used, at each interest payment without method).

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date, the interest expense: c. First, the fair values of both the equity component
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a. Remains constant. and the liability component are estimated. Then
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b. Is equal to the change in book value. the proceeds are allocated to the liability and
c. Increases. equity components based on the relation between
d. Decreases. the estimated fair values (relative fair value
method).
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28. When bonds are retired prior to maturity with proceeds d. The equity component is measured at its intrinsic
from a new bond issue, gain or loss from the early value. The liability component is measured at the
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extinguishment of debt, if material, should be par amount less the intrinsic value of the equity
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a. Amortized over the remaining original life of the component.

retired bond issue.
b. Amortized over the life of the new bond issue.
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c. Recognized as an extraordinary item in the period

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of extinguishment.
d. Recognized in income from continuing operations
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in the period of extinguishment. - done -

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SUGGESTED ANSWERS
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1. D 11. C 21. D
2. D 12. D 22. D
3. D 13. A 23. B
4. D 14. C 24. D
5. B 15. C 25. D
6. A 16. C 26. D
7. D 17. D 27. D
8. D 18. D 28. D
9. C 19. C 29. D
10. C 20. D 30. A

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

LECTURE NOTES
SUMMARY of PFRS 9 in relation to (b) Upon initial recognition it is designated by the entity
Financial Liabilities as at fair value through profit or loss. An entity may
use this designation only when permitted, or when
Scope doing so results in more relevant information, because
either
Leases
(i) it eliminates or significantly reduces a
PFRS 9 applies to lease receivables and payables only in
measurement or recognition inconsistency
limited respects:
(sometimes referred to as ‘an accounting
• PFRS 9 applies to lease receivables with respect to the
mismatch’) that would otherwise arise from
derecognition and impairment provisions.
measuring assets or liabilities or recognizing the
• PFRS 9 applies to lease payables with respect to the
gains and losses on them on different bases; or
derecognition provisions.
(ii) a group of financial assets, financial liabilities or
• PFRS 9 applies to derivatives embedded in leases.
both is managed and its performance is evaluated
on a fair value basis, in accordance with a
Financial guarantees
documented risk management or investment
PFRS 9 applies to financial guarantee contracts issued.
strategy, and information about the group is
However, if an issuer of financial guarantee contracts has
provided internally on that basis to the entity’s key
previously asserted explicitly that it regards such contracts
management personnel, for example the entity’s
as insurance contracts and has used accounting applicable
board of directors and chief executive officer.
to insurance contracts, the issuer may elect to apply either
PFRS 9 or PFRS 4 Insurance Contracts to such financial
Financial liabilities measured at amortized cost
guarantee contracts. The issuer may make that election

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contract by contract, but the election for each contract is Default category for financial liabilities that do not meet

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irrevocable. the definition of financial liabilities at fair value through

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profit or loss. Examples are accounts payable, notes
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Accounting by the holder is excluded from the scope of
PFRS 9 and PFRS 4 (unless the contract is a reinsurance
payable, issued
customers.
debt instruments and deposits from

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contract). Therefore, paragraphs 10-12 of PAS 8
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Accounting Policies, Changes in Accounting Estimates and
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Errors apply. Those paragraphs specify criteria to use in Initial Recognition

developing an accounting policy if no PFRS applies
PFRS 9 requires recognition of a financial asset when, and
specifically to an item.
only when, the entity becomes a party to the contractual
provisions of the instrument.
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Loan commitments
Loan commitments are outside the scope of PFRS 9 if they
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cannot be settled net in cash or another financial

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Measurement
instrument, they are not designated as financial liabilities
at fair value through profit or loss, and the entity does not Financial Liabilities Measurement Summary
have a past practice of selling the loans that resulted from
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the commitment shortly after origination. An issuer of a Sub-

commitment to provide a loan at a below-market interest Category Initial sequent Changes in FV
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rate is required initially to recognise the commitment at its FL@FV FV FV P/L

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fair value; subsequently, the issuer will remeasure it at the (Trading)

higher of (a) the amount loss allowance determined in FL@FV FV FV Credit risk – OCI
accordance with Section 5.5 and (b) the amount initially (Designated) Others – P/L
recognised less, where appropriate, cumulative amount of FL@AC FV - TC AC Ignore
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income recognised in accordance with the principles of

PFRS 15. Loan commitments are subject to the Financial Guarantees
derecognition provisions of PFRS 9. A financial guarantee contract is a contract that requires
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the issuer to make specified payments to reimburse the

holder for a loss it incurs because a specified debtor fails to
Classification of Financial Liabilities make payment when due.
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Financial liabilities at fair value through profit or loss. Financial guarantee contracts are recognized:
• initially at fair value. If the financial guarantee contract
A financial liability at fair value through profit or loss is a was issued in a stand-alone arm's length transaction to
financial liability that meets either of the following an unrelated party, its fair value at inception is likely to
conditions. equal the consideration received, unless there is
(a) It is classified as held for trading. A financial liability is evidence to the contrary.
classified as held for trading if it is: • subsequently at the higher of (a) the amount loss
(i) incurred principally for the purpose of repurchasing allowance determined in accordance with Section 5.5
it in the near term; and (b) the amount initially recognised less, where
(ii) part of a portfolio of identified financial instruments appropriate, cumulative amount of income recognised
that are managed together and for which there is in accordance with the principles of PFRS 15.
evidence of a recent actual pattern of short-term
profit-taking; or
(iii) a derivative (except for a derivative that is a Reclassification of Financial Liabilities
financial guarantee contract or a designated and An entity shall not reclassify any financial liability.
effective hedging instrument).

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Derecognition of a Financial Liability Scope

A financial liability should be removed from the statement PAS 32 applies in presenting and disclosing information
of financial position when, and only when, it is about all types of financial instruments with the following
extinguished, that is, when the obligation specified in the exceptions: [PAS 32.4]
contract is either discharged or cancelled or expires. • interests in subsidiaries, associates and joint ventures
that are accounted for under PFRS 10 Consolidated
Where there has been an exchange between an existing Financial Statements and PAS 28 Investments in
borrower and lender of debt instruments with substantially Associates and Joint Ventures. However, PAS 32 applies
different terms, or there has been a substantial to all derivatives on interests in subsidiaries, associates,
modification of the terms of an existing financial liability, or joint ventures.
this transaction is accounted for as an extinguishment of • employers' rights and obligations under employee
the original financial liability and the recognition of a new benefit plans (see PAS 19)
financial liability. A gain or loss from extinguishment of the • insurance contracts(see PFRS 4). However, PAS 32
original financial liability is recognized in profit or loss. applies to derivatives that are embedded in insurance
contracts if they are required to be accounted
separately by PFRS 9
IFRIC 19 - Extinguishing Financial Liabilities • financial instruments that are within the scope of PFRS 4
with Equity Instruments because they contain a discretionary participation
feature are only exempt from applying paragraphs 15-
• If a debtor issues equity instruments to a creditor to
32 and AG25-35 (analysing debt and equity
extinguish all or part of a financial liability, those
components) but are subject to all other PAS 32
equity instruments are 'consideration paid' in
requirements
accordance with PAS 39.41. Accordingly, the debtor
• contracts and obligations under share-based payment
should derecognise the financial liability fully or partly.

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transactions (see PFRS 2) with the following exceptions:

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• The debtor should measure the equity instruments ◦ this standard applies to contracts within the scope of

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issued to the creditor at fair value, unless fair value is PAS 32.8-10 (see below)
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not reliably determinable, in which case the equity
instruments issued are measured at the fair value of
◦ paragraphs 33-34 apply when accounting for
treasury shares purchased, sold, issued or cancelled

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the liability extinguished. by employee share option plans or similar
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arrangements
• If only part of a liability is extinguished, the debtor
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must determine whether any part of the consideration PAS 32 applies to those contracts to buy or sell a non-
paid relates to modification of the terms of the financial item that can be settled net in cash or another
remaining liability. If it does, the debtor must allocate financial instrument, except for contracts that were
the fair value of the consideration paid between the entered into and continue to be held for the purpose of the
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liability extinguished and the liability retained. receipt or delivery of a non-financial item in accordance
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• The debtor recognises in profit or loss the difference with the entity's expected purchase, sale or usage
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between the carrying amount of the financial liabiilty requirements. [PAS 32.8]
(or part) extinguished and the measurement of the
equity instruments issued.
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Offsetting
• When only part of the liability is extinguished, the
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debtor must determine whether the terms of the PAS 32 specifies that a financial asset and a financial
remaining debt have been substantially modified liability should be offset and the net amount reported
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(taking into account any portion of the consideration when, and only when, an entity: [PAS 32.42]
paid that was allocated to the remaining debt). If there • has a legally enforceable right to set off the amounts;
has been a substantial modification, the debtor should and
account for an extinguishment of the old remaining • intends either to settle on a net basis, or to realise the
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liabiilty and the recognition of a new liability (see PAS asset and settle the liability simultaneously. [PAS
39.40). 32.48]
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Key definitions
SUMMARY of PAS 32
Financial liability: any liability that is:
• a contractual obligation:
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Objective
◦ to deliver cash or another financial asset to another
The stated objective of PAS 32 is to establish principles for entity; or
presenting financial instruments as liabilities or equity and ◦ to exchange financial assets or financial liabilities
for offsetting financial assets and liabilities. [PAS 32.1] with another entity under conditions that are
potentially unfavourable to the entity; or
PAS 32 addresses this in a number of ways: • a contract that will or may be settled in the entity's own
. clarifying the classification of a financial instrument equity instruments and is
issued by an entity as a liability or as equity ◦ a non-derivative for which the entity is or may be
. prescribing the accounting for treasury shares (an obliged to deliver a variable number of the entity's
entity's own repurchased shares) own equity instruments or
. prescribing strict conditions under which assets and ◦ a derivative that will or may be settled other than by
liabilities may be offset in the balance sheet the exchange of a fixed amount of cash or another
financial asset for a fixed number of the entity's own
PAS 32 is a companion to PFRS 9 Financial Instruments: equity instruments. For this purpose the entity's own
Recognition and Measurement. PAS 39 deals with, among equity instruments do not include: instruments that
other things, initial recognition of financial assets and are themselves contracts for the future receipt or
liabilities, measurement subsequent to initial recognition, delivery of the entity's own equity instruments;
impairment, derecognition, and hedge accounting. puttable instruments classified as equity or certain

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liabilities arising on liquidation classified by PAS 32 Contingent settlement provisions

as equity instruments If, as a result of contingent settlement provisions, the
issuer does not have an unconditional right to avoid
Equity instrument: Any contract that evidences a settlement by delivery of cash or other financial instrument
residual interest in the assets of an entity after deducting (or otherwise to settle in a way that it would be a financial
all of its liabilities. liability) the instrument is a financial liability of the issuer,
unless:
Puttable instrument: a financial instrument that gives • the contingent settlement provision is not genuine or
the holder the right to put the instrument back to the • the issuer can only be required to settle the obligation in
issuer for cash or another financial asset or is the event of the issuer's liquidation or
automatically put back to the issuer on occurrence of an • the instrument has all the features and meets the
uncertain future event or the death or retirement of the conditions of PAS 32.16A and 16B for puttable
instrument holder. instruments [PAS 32.25]

Classification as liability or equity Puttable instruments and obligations arising on

The fundamental principle of PAS 32 is that a financial liquidation
instrument should be classified as either a financial liability In February 2008, the IASB amended IAS 32 and IAS 1
or an equity instrument according to the substance of the Presentation of Financial Statements with respect to the
contract, not its legal form, and the definitions of financial balance sheet classification of puttable financial
liability and equity instrument. Two exceptions from this instruments and obligations arising only on liquidation. As
principle are certain puttable instruments meeting specific a result of the amendments, some financial instruments
criteria and certain obligations arising on liquidation (see that currently meet the definition of a financial liability will
below). The entity must make the decision at the time the be classified as equity because they represent the residual
instrument is initially recognised. The classification is not interest in the net assets of the entity. [IAS 32.16A-D]

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subsequently changed based on changed circumstances.
[PAS 32.15] Classifications of rights issues

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A financial instrument is an equity instrument only if (a) 32 on the classification of rights issues. For rights issues
the instrument includes no contractual obligation to deliver offered for a fixed amount of foreign currency current

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cash or another financial asset to another entity and (b) if practice appears to require such issues to be accounted for
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the instrument will or may be settled in the issuer's own as derivative liabilities. The amendment states that if such
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equity instruments, it is either: rights are issued pro rata to an entity's all existing
• a non-derivative that includes no contractual obligation shareholders in the same class for a fixed amount of
for the issuer to deliver a variable number of its own currency, they should be classified as equity regardless of
equity instruments; or the currency in which the exercise price is denominated.
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• a derivative that will be settled only by the issuer

exchanging a fixed amount of cash or another financial Compound financial instruments
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asset for a fixed number of its own equity instruments. Some financial instruments – sometimes called compound
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[PAS 32.16] instruments – have both a liability and an equity

component from the issuer's perspective. In that case, IAS
Illustration – preference shares 32 requires that the component parts be accounted for and
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If an entity issues preference (preferred) shares that pay a presented separately according to their substance based
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fixed rate of dividend and that have a mandatory on the definitions of liability and equity. The split is made
redemption feature at a future date, the substance is that at issuance and not revised for subsequent changes in
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they are a contractual obligation to deliver cash and, market interest rates, share prices, or other event that
therefore, should be recognized as a liability. [PAS changes the likelihood that the conversion option will be
32.18(a)] In contrast, preference shares that do not have exercised. [PAS 32.29-30]
a fixed maturity, and where the issuer does not have a
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contractual obligation to make any payment are equity. In To illustrate, a convertible bond contains two components.
this example even though both instruments are legally One is a financial liability, namely the issuer's contractual
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termed preference shares they have different contractual obligation to pay cash, and the other is an equity
terms and one is a financial liability while the other is instrument, namely the holder's option to convert into
equity. common shares. Another example is debt issued with
detachable share purchase warrants.
Illustration – issuance of fixed monetary amount of equity
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instruments When the initial carrying amount of a compound financial

A contractual right or obligation to receive or deliver a instrument is required to be allocated to its equity and
number of its own shares or other equity instruments that liability components, the equity component is assigned the
varies so that the fair value of the entity's own equity residual amount after deducting from the fair value of the
instruments to be received or delivered equals the fixed instrument as a whole the amount separately determined
monetary amount of the contractual right or obligation is a for the liability component. [PAS 32.32]
financial liability. [PAS 32.20]
Interest, dividends, gains, and losses relating to an
Illustration – one party has a choice over how an instrument classified as a liability should be reported in
instrument is settled profit or loss. This means that dividend payments on
When a derivative financial instrument gives one party a preferred shares classified as liabilities are treated as
choice over how it is settled (for instance, the issuer or the expenses. On the other hand, distributions (such as
holder can choose settlement net in cash or by exchanging dividends) to holders of a financial instrument classified as
shares for cash), it is a financial asset or a financial liability equity should be charged directly against equity, not
unless all of the settlement alternatives would result in it against earnings. [PAS 32.35]
being an equity instrument. [PAS 32.26]

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Transaction costs of an equity transaction are deducted Statement of Comprehensive Income

from equity. Transaction costs related to an issue of a • Items of income, expense, gains, and losses, with
compound financial instrument are allocated to the liability separate disclosure of gains and losses from: [PFRS
and equity components in proportion to the allocation of 7.20(a)]
proceeds. ◦ financial liabilities measured at fair value through
profit and loss, showing separately those held for
trading and those designated at initial recognition.
SUMMARY of PFRS 7 in relation to ◦ financial liabilities measured at amortized cost.
Financial Liabilities • Other income statement-related disclosures:
◦ total interest income and total interest expense for
PFRS 7 requires certain disclosures to be presented by those financial instruments that are not measured at
category of instrument based on the PAS 39 measurement fair value through profit and loss [PFRS 7.20(b)]
categories. Certain other disclosures are required by class ◦ fee income and expense [PFRS 7.20(c)]
of financial instrument. For those disclosures an entity
must group its financial instruments into classes of similar Other Disclosures
instruments as appropriate to the nature of the information • accounting policies for financial instruments [PFRS 7.21]
presented. [PFRS 7.6] • information about the fair values of each class of
financial liability, along with: [IFRS 7.25-30]
The two main categories of disclosures required by PFRS 7 ◦ comparable carrying amounts
are: ◦ description of how fair value was determined
• information about the significance of financial ◦ the level of inputs used in determining fair value
instruments. ◦ reconciliations of movements between levels of fair
• information about the nature and extent of risks arising value measurement hierarchy additional disclosures
from financial instruments for financial instruments whose fair value is

m
er as
determined using level 3 inputs including impacts on
profit and loss, other comprehensive income and

co
Information about the significance
eH w of financial sensitivity analysis
instruments ◦ information if fair value cannot be reliably measured

o.
Statement of Financial Position The fair value hierarchy introduces 3 levels of inputs based
rs e
• Disclose the significance of financial instruments for an on the lowest level of input significant to the overall fair
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entity's financial position and performance. [PFRS 7.7] value (PFRS 7.27A-27B):
This includes disclosures for each of the following • Level 1 – quoted prices for similar instruments
categories: [PFRS 7.8] • Level 2 – directly observable market inputs other than
◦ financial liabilities at fair value through profit and Level 1 inputs
o

loss, showing separately those held for trading and • Level 3 – inputs not based on observable market data
those designated at initial recognition
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◦ financial liabilities measured at amortized cost Note that disclosure of fair values is not required when the
vi re

• Other balance sheet-related disclosures: carrying amount is a reasonable approximation of fair

◦ special disclosures about financial liabilities value, such as short-term trade receivables and payables,
designated to be measured at fair value through or for instruments whose fair value cannot be measured
y

profit and loss, including disclosures about credit risk reliably. [PFRS 7.29(a)]
ed d

and market risk, changes in fair values attributable

to these risks and the methods of
ar stu

measurement.[PFRS 7.9-11]
◦ information about compound financial instruments
with multiple embedded derivatives [PFRS 7.17]
◦ breaches of terms of loan agreements [PFRS 7.18- J - end of FAR.2830 - J
is

19]
Th
sh

https://www.coursehero.com/file/65277422/FAR2830-Financial-liabilities-summary-DIYpdf/
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