International Financial Reporting Standards_guide.pdf

222 Chapter 18 Financial Instruments (IFRS 9)
18.9 EXAMPLES
EXAMPLE 18.1
An entity holds investments to collect their contractual cash flows but would sell an investment
in particular circumstances. Would a sale contradict the entity’s objective to hold the
asset to collect contractual cash flows and therefore prohibit amortized cost classification?
EXPLANATION
Although an entity may consider (among other financial information) the financial assets’
fair values from a liquidity perspective, the entity’s objective is to hold the financial assets
and collect the contractual cash flows. Some sales would not contradict that objective and the
investment could be classified at amortized cost.
EXAMPLE 18.2
An entity holds a bond with a stated maturity date that pays a variable market interest rate.
That variable interest rate is capped. Are the cash flows on the bond solely for payments of
interest and principal and therefore meet the requirement to be classified at amortized cost?
EXPLANATION
The contractual cash flows of the bond comprise both those cash flows associated with an
instrument that has a fixed rate and an instrument that has a variable rate. These cash flows
may be the payments of principal and interest as long as the interest reflects the consideration
for the time value of money and for the credit risk associated with the instrument
during the term of the instrument. The fact that the interest rate is capped reduces the variability
in the cash flows as a variable rate becomes fixed but does not change the fact that
the cash flows are solely for interest and principal. The bond could therefore be classified at
amortized cost.