Change in Functional Currency

Chapter 20 – Financial Instruments Page 279 A financial asset classified as a loan or receivable should be measured at “amortised cost using the effective interest method” following initial recognition at fair value, i.e. on the same measurement basis as that used for held-to-maturity investments. [IAS 39.46] Amortisation, and write downs where the value of the financial asset is impaired, should be reported directly in profit or loss for the period. Any profit or loss on disposal of the financial asset should also be recognised directly in profit or loss. [IAS 39.56] An impairment loss should be calculated and treated in the same way as that for a held-to- maturity investment, as discussed above.

10.1.4 Available-for-sale financial assets

An available-for-sale financial asset is one that has been designated as such or has not been classified under the above three categories. [IAS 39.9] Available-for-sale financial assets should be measured at their fair value at the end of each reporting period. [IAS 39.46] The gain or loss arising from fair valuing the financial asset at the end of each reporting period should be recognised in other comprehensive income. On disposal, the cumulative gains and losses recognised in other comprehensive income will be reclassified from equity to profit or loss as a reclassification adjustment. [IAS 39.55] Illustration 4 An entity classifies as available-for-sale a financial asset with a fair value on initial recognition of CU150. At 31 December 2006 the cumulative gains recognised in respect of this asset in other comprehensive income are CU50. On 31 December 2007 the entity disposes of the asset for CU320. Profit or loss for the year will include: Gain on sale of available-for-sale investments CU120 CU320 proceeds – CU200 carrying amount CU150 + CU50 Reclassified to profit or loss CU50 recognised in other comprehensive income for the year ended 31 December 2006 Where a reduction in the value of an available-for-sale financial asset has been recognised directly in other comprehensive income but there is now evidence that the asset is impaired, the cumulative loss that was previously recognised in other comprehensive income should be reclassified from equity to profit or loss. The amount of the loss reclassified from equity should be the difference between the carrying amount of the asset and its current fair value, less any previously recognised impairment losses. [IAS 39.67, 39.68] An impairment recognised in profit or loss in respect of an available-for-sale equity instrument should not be reversed through profit or loss in future periods. However, if an impairment related to an available-for-sale debt instrument subsequently reverses, this reversal should be recognised in profit or loss. [IAS 39.69, 39.70] 10.1.5 Summary of treatment of financial assets The table below summaries the accounting treatment for financial assets, as discussed above. Chapter 20 – Financial Instruments Page 280 Asset Sub-category Description Measurement after initial recognition Recording of changes Designated Any financial asset designated on initial recognition and meeting the specified recognition criteria Financial assets at fair value through, profit or loss Held for trading Financial assets held for the purpose of selling in the short term. This will include most derivatives Fair value Profit or loss Available-for- sale financial assets None Non-derivative financial assets designated by an entity as available-for- sale, or not falling under the other three classifications Other comprehensive income, except for impairment losses Loans and receivables None Non-derivative financial assets with fixed or determinable payments, other than those quoted in a market and those designated as held for trading or available-for- sale Held-to-maturity investments None Non-derivative financial assets with fixed or determinable payments and fixed maturity dates, where the entity has the intention and ability to hold them long term and they are not classified as any of the above Amortised cost Profit or loss