Core concepts
- 01Classification: business model test + SPPI (Solely Payments of Principal & Interest) test.
- 02Categories: Amortised Cost, FVOCI (with/without recycling), FVTPL.
- 03Impairment: Expected Credit Loss (ECL) model — 12-month vs lifetime; 3 stages.
- 04Hedge accounting: fair value hedge, cash flow hedge, net investment hedge.
- 05Modification & derecognition rules; substantial modification → derecognition.
Flowchart summary
Classification of Financial Assets | Business Model = Hold to Collect + SPPI passed? | +-- Yes ---> Amortised Cost | HtC & Sell + SPPI --> FVOCI (recycled) | Others --> FVTPL | Equity (not held for trading) elect FVOCI (no recycle)
Exam-critical pointers
- ⭐Embedded derivatives: separated if not closely related, host not at FVTPL, derivative criteria met.
- ⭐Stage 1 (12-mth ECL), Stage 2 (lifetime ECL, no impairment), Stage 3 (lifetime ECL + credit-impaired).
- ⭐Hedge effectiveness: prospective test; no need for 80-125% range under Ind AS 109.
- ⭐Equity instrument FVOCI election: dividends in P&L, FV changes never recycled.
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