Accounting for Financial Instruments Set 2
Accouting for Financial INstruments
Accouting for Financial INstruments
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Kartei Details
| Karten | 33 |
|---|---|
| Sprache | English |
| Kategorie | BWL |
| Stufe | Universität |
| Erstellt / Aktualisiert | 19.02.2013 / 21.02.2013 |
| Lizenzierung | Kein Urheberrechtsschutz (CC0) |
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Characteristics of (stand-alone) derivatives under IAS 39.9
- Value is marked to changes in a specific underlying (examples of underlyings in IAS 39.10 are interest rates, financial instrument prices, commodity prices, foreign exchange rates, indices of prices or rates, credit ratings ore credit indices, or similar variables)
- Insignificant or substantially reduced initial net investment compared with underlying
- Settlement at a future date
Irrevocable loan commitments - Scope of application
- IAS 39 includes only loan commitments that
- are designated as financial liabilities at fair value through profit or loss
- are settled net in cash or by delivering or issuing another financial instrument (those loan commitments are derivatives)
- provide a loan at an interest rate below market rate
- had a past parctice of selling the sassets resulting from its loan commitments shortly after origination (to all its loan commitments in the same class)
- Result - fair value accounting influences profit or loss
- Other loan commitments are in scope of IAS 38 Provisions, contigent liabilities
- Loan commitments are usually no "onerous contracts" in sense of IAS 37, because the ost of fulfilling the contract are not higher than the economic benefits expected
Financial guarantee contracts - Definition
- Contract that
- requires the issuer to make specified payments to reimburse the holder
- for a loss it incurs (has to be a loss)
- because a specified debtor fails to make payment when due
- in accordance with the original or modified terms of a debt instrument
- Debt instrument
- e.g. loans, bonds
- Protection buyer
- party that accounts the debt instrument and carries therefore the potential risk of losing this asset
- Protection seller
- party that assumes the default risk by receiving some fees
- Payment
- reimbrsement of the debt instrument's loss
Financial guarantee contracts - Initial Recognition
- Fair value
- Fair value of a market price transaction equals the premium of guarantee benefit
Financial guarantee contracts - Subsequent measurement
- Measurement at the higher of
- amount determined in accordance with IAS 37.40, and
- amount initially recognised (less, cumulative amortisation recognised in accordance with IAS 18)
Financial guarantee contracts - Differences to credit derivatives
- Payments do not require that the holder is exposed to, and has incurred a loss on the filure of the debtor to make payments on the guaranteed asset when due
- Derivatives in accordance with IAS 39
- e.g. credit default swap, requiring payments in response to changes in a specified credit rating or credit index
Embedded derivatives - Definition
- Financial instruments combined with other financial assets or liabilities to form new financial instruments (hybrid, structured products)
- Normally a combination of
- host contract and
- embedded derivative
Embedded derivatives shall be separted if
- Hybrid (combined) instrument is not measured at fair value (with changes in fair value recognised in profit or loss)
- Separate instrument with the same terms as the embedded derivative would meet the definition of a derivative
- Economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract
