ipsas 29—financial instruments: recognition and measurement - IFAC

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FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT Calculations Table 1: Amortization Schedule (Using Contractual Repayments at 6% Interest) Year 0 CU’000 Year 1 CU’000 Year 2 CU’000 1283 Year 3 CU’000 Year 4 CU’000 Year 5 CU’000 Year 6 CU’000 Capital 250,000 250,000 250,000 250,000 250,000 250,000 250,000 Interest – 15,000 15,000 15,000 15,000 10,500 6,000 Payments – 15,000 15,000 15,000 90,000 85,500 106,000 Balance 250,000 250,000 250,000 250,000 175,000 100,000 – Table 2: Discounting Contractual Cash Flows (Based on a Market Rate of 11.5%) Year 1 CU’000 Year 2 CU’000 Year 3 CU’000 Year 4 CU’000 Year 5 CU’000 Year 6 CU’000 Capital balance 250,000 250,000 250,000 175,000 100,000 – Interest payable 15,000 15,000 15,000 15,000 10,500 6,000 Total payments (capital and interest) 15,000 15,000 15,000 90,000 85,500 106,000 Present value of payments 13,452,915 12,065,394 10,820,981 58,229,497 49,612,576 55,164,117 Total present value of payments 199,345,480 Proceeds paid 250,000,000 Less: Present value of outflows (fair value of loan on initial recognition) 50,654,520 Off-market portion of loan to be recognized as expense 199,345,480 Table 3: Calculation of Loan Balance and Interest Using the Effective Interest Method Year 1 CU Year 2 CU Year 3 CU Year 4 CU Year 5 CU Year 6 CU Capital 199,345,480 207,270,210 216,106,284 225,958,228 161,943,735 95,067,265 Interest accrual Interest and capital payments 22,924,730 23,836,074 24,852,223 25,985,228 18,623,530 10,932,735 15,000,000 15,000,000 15,000,000 90,000,000 85,500,000 106,000,000 Balance 207,270,210 216,106,284 225,958,228 161,943,735 95,067,265 – Financial Guarantee Contract Provided at Nominal Consideration IE43. Entity C is a major motor vehicle manufacturer in Jurisdiction A. On January 1, 201V Government A (the issuer) enters into a financial guarantee contract with Entity B (the holder) to reimburse Entity B against the financial effects of IPSAS 29 ILLUSTRATIVE EXAMPLES PUBLIC SECTOR
FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT default by Entity C (the debtor) for a 30 year loan of 50 million Currency Units (CUs) repayable in two equal instalments of 25 million CUs in 201X and 204Z. Entity C provides nominal consideration of 30,000 CUs to Government A. Prior to entering into negotiation with Government A, Entity C had approached a number of other entities to issue a guarantee, but none of these entities was prepared to issue such a guarantee. There are no recent examples of financial guarantee contracts in the motor manufacturing sector of the economy in Jurisdiction A or in neighbouring Jurisdictions D & E. Government A concludes that it cannot use a valuation technique as the use of a valuation technique does not provide a reliable measure of fair value. Government A therefore determines to measure the financial guarantee contract in accordance with IPSAS 19. IE44. On December, 31 201V, having reviewed the financial position and performance of Entity C, Government A determines that there is no present obligation to Entity B in respect of the financial guarantee contract. Government A does not recognize a liability in its statement of financial position. Government A makes the disclosures relating to fair value and credit risk in IPSAS 30, “Financial Instruments: Disclosures” in respect of the financial guarantee contract. It also discloses a contingent liability of 50 million CUs in accordance with IPSAS 19. In its statement of financial performance Government A recognizes revenue of 1,000 CUs in respect of the nominal consideration payable by Entity C. IE45. In 201Z there has been a further downturn in the motor manufacturing sector affecting Entity C. Entity C is seeking bankruptcy protection and has defaulted on the first repayment of principal, although it has met its obligations for interest payments. Government A determines that Entity C is unlikely to recover, but negotiations are advanced with a potential acquirer (Entity D), which will restructure Entity C. Entity D has indicated that it will assume responsibility for the final instalment of the loan with Entity B, but not the initial instalment. Government A recognizes an expense and liability for 25 million CUs and discloses a contingent liability of 25 million CUs. Interaction Between Measurement Requirements of IPSAS 23 and IPSAS 29 Background IE46. An individual donates shares in listed entity X to public sector entity A on January 1, 20X8. At that date, the shares in entity X have a fair value of CU1,000,000. At December 31, 20X8, the fair value of the shares is CU900,000. As part of the arrangement, entity A incurs the transfer duty to have the shares transferred into its name. These costs amount to CU10,000. IE47. Listed entity X provides telecommunications infrastructure and related services to the public. During 20X9, new technology was introduced into the telecommunications industry, making the infrastructure and equipment used by IPSAS 29 ILLUSTRATIVE EXAMPLES 1284
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ipsas 29—financial instruments: recognition and measurement - IFAC

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