ipsas 29—financial instruments: recognition and measurement - IFAC

FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT
the floating interest rate was reset to market rates, it will be amortized to the
next date when the floating interest is reset to market rates. This is because
the premium or discount relates to the period to the next interest reset date
because, at that date, the variable to which the premium or discount relates
(i.e., interest rates) is reset to market rates. If, however, the premium or
discount results from a change in the credit spread over the floating rate
specified in the instrument, or other variables that are not reset to market
rates, it is amortized over the expected life of the instrument.
AG19. For floating rate financial assets and floating rate financial liabilities,
periodic re-estimation of cash flows to reflect movements in market rates
of interest alters the effective interest rate. If a floating rate financial asset
or floating rate financial liability is recognized initially at an amount equal
to the principal receivable or payable on maturity, re-estimating the future
interest payments normally has no significant effect on the carrying
amount of the asset or liability.
AG20. If an entity revises its estimates of payments or receipts, the entity shall
adjust the carrying amount of the financial asset or financial liability (or
group of financial instruments) to reflect actual and revised estimated cash
flows. The entity recalculates the carrying amount by computing the
present value of estimated future cash flows at the financial instrument’s
original effective interest rate or, when applicable, the revised effective
interest rate calculated in accordance with paragraph 103. The adjustment
is recognized in surplus or deficit as revenue or expense. If a financial
asset is reclassified in accordance with paragraph 55, 57, or 58, and the
entity subsequently increases its estimates of future cash receipts as a
result of increased recoverability of those cash receipts, the effect of that
increase shall be recognized as an adjustment to the effective interest rate
from the date of the change in estimate rather than as an adjustment to the
carrying amount of the asset at the date of the change in estimate.
Derivatives
AG21. Typical examples of derivatives are futures and forward, swap and option
contracts. A derivative usually has a notional amount, which is an amount
of currency, a number of shares, a number of units of weight or volume or
other units specified in the contract. However, a derivative instrument
does not require the holder or writer to invest or receive the notional
amount at the inception of the contract. Alternatively, a derivative could
require a fixed payment or payment of an amount that can change (but not
proportionally with a change in the underlying) as a result of some future
event that is unrelated to a notional amount. For example, a contract may
require a fixed payment of CU1,000 2 if the six-month interbank offered
2 In this Standard, monetary amounts are denominated in “currency units” (CU).
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IPSAS 29 APPLICATION GUIDANCE
PUBLIC SECTOR