Transactions settled within the period

Chapter 20 – Financial Instruments Page 277 their recoverable amount at the end of each reporting period. Impairment is where an event has occurred after the initial recognition of a financial asset and that event results in a detrimental effect on the cash flows expected in relation to the item. No account is taken of losses that are expected to arise as a result of future events. [IAS 39.58]

10.1 Financial assets

IAS 39 defines four categories of financial instrument:  a financial asset or liability at fair value through profit and loss;  held-to-maturity investments;  loans and receivables; and  available-for-sale financial assets.

10.1.1 Financial assetliability at fair value through profit or loss

This measurement basis results in the financial asset or liability being remeasured at fair value at the end of each reporting period, with changes in fair value being recognised as part of the profit or loss for the period. This treatment is required for financial assets classified as held for trading. [IAS 39.9] To be classified as held for trading the financial asset should have been acquired for the purpose of selling or repurchasing it in the short-term. Alternatively, the financial asset should be part of a portfolio of identified financial instruments that are managed together. In this case there should also be evidence that the entity has made profits from the turnover of such items in the short-term. [IAS 39.9] A derivative as defined above is generally classified as a financial instrument held for trading. [IAS 39.9] A financial instrument may also be recognised at fair value, with changes recognised directly in profit or loss, where an entity chooses i.e. designates this treatment when the financial instrument is first recognised. However, in June 2005 an amendment was made to IAS 39 to restrict the use of this fair value option to circumstances where specific criteria are met only. [IAS 39.9] Designation is only permitted when it results in more relevant information because it eliminates, or reduces, a measurement or recognition inconsistency that would otherwise arise. An example would be if an entity had financial assets that were measured at fair value with gains or losses being recognised in equity but its related financial liabilities were amortised and therefore had a direct impact on the profit or loss for the period. In such circumstances, by using the at fair value through profit or loss approach, the gains and losses from both the financial asset and related financial liability would be recognised directly in profit or loss. Other criteria for using the at fair value through profit or loss approach is when a group of financial assets and financial liabilities is evaluated on a fair value basis for internal risk management purposes and therefore forms the basis on which information is presented to management. The fair value through profit or loss approach may also be used for contracts containing one or more embedded derivatives, subject to restrictions on the impact of the embedded derivative. [IAS 39.11A] Financial assets that are classified as held for trading, or where the entity has chosen the fair value measurement option, as described above, should be remeasured at fair value at the end of each reporting period. No deduction is made for the transaction costs that may be incurred on the disposal of the financial asset. All movements in fair value are recognised