Investments

Classification
 Current Investments
 Intended to be sold within 12 months
 Non Current Investments
 Other than current Investments
Classification
 Investments are further classified as:
 Subsequently measured at amortized
cost (AC);
 Subsequently measured at fair value
through other comprehensive income
(FVTOCI); or
 Subsequently measured at fair value
through profit or loss (FVTPL).
Two tests
 Business Model Test
 Intended to collect contractual cash flows
till maturity or sell them before maturity
or both
 Cash Flow Characteristics
 Certain Cash flow – Interest and
Principal
Measured at Amortised Cost
 Investment which held within a business model
whose objective is to hold collect contractual
cash flows;
 Contractual terms of the financial asset give
rise on specified dates to cash flows that are
solely payments of principal and interest on the
principal amount outstanding.
 Investment in debt instruments which give rise to
certain cash flows on specified dates with the
intention to hold them till maturity will be classified in
this category.
Measured At Fair Value Through OCI
 Investment which are held within a business
model whose objective is to collect contractual
cash flows and sell financial assets;
 Contractual terms of the financial asset give
rise on specified dates to cash flows that are
solely payments of principal and interest on the
principal amount outstanding.
 Investment in debt instruments which give rise to
certain cash flows on specified dates with the
intention to collect contractual cash flows and sell
them before maturity to meet certain cash flow
requirements will be classified as FVTOCI.
Measured At Fair Value Through
Profit or Loss
 An investments which is neither
classified AC nor FVTOCI
 Investment in equity instruments will get
classified under this category as it fails to
meet the cash flow characteristics test.
Debt Instruments

Debt
Instruments

Fair Value through Fair Value through

Amrotised Cost
OCI Profit or Loss

Irrecovable
Cash flows by way To collect Cash flows by way
To collect election at initial
of interest and contractual cash of interest and Other Debt
contractural cash recognition to
principal on specific flows and by principal on specific Instruments
flows measure through
dates selling investment dates
profit or loss
Equity Instruments

Equity Instruments

Fair Value through Fair Value through

OCI Profit or Loss

Irrecovable
election at initial
Other equity
recognition to
intruments
measure through
OCI
Examples
 Investment made in 1,000 equity shares of an unlisted company;
 Investment made in government securities with the intention to
collect contractual cash flows;
 Investment made in the equity shares of a listed company. The
shares are regularly traded, but the company has no intention of
trading.
 Investment made in corporate debentures which are unlisted.
 Investments made in a 10 years bond. The company intends to
sell these bonds after 3 years to raise money for replacement of a
machine.
 Investments made in a 10 years bond to be held till maturity.
However, the company may sell them if there is a significant
decline in the market interest rate.
 Investment made in listed corporate debentures with the intention
to trade.
Initial Measurement
 At cost
 Transactions cost directly related to
acquisition are included
Subsequent Measurement
Classificatio Subsequent Impair Value Change
n Measurement ment
testing

At amortized Amortized cost less Yes Impairment loss

cost impairment, if any through profit or
loss

Fair value At fair value No Through OCI

through OCI
Fair Value At fair value No Through profit or
through loss
profit or loss
Reclassifiecation
Reclassification Measurement Treatment of difference arising due to
reclassification

Amortized cost to FVTPL FV at reclassification date Difference between amortized cost and fair value
recognized through profit or loss

FVTPL to Amortized cost FV at reclassification date to be -

the new carrying amount

Amortized cost to FVTOCI FV at reclassification date Difference between amortized cost and fair value
recognized through OCI

FVTOCI to Amortized cost FV at reclassification date to be Cumulative gain or loss previously recognized
the new carrying amount. through OCI is removed from other equity and
adjusted against the fair value of investment. As a
result, the financial asset is measured at the
reclassification date as if it had always been
measured at amortized cost.

FVTPL to FVTOCI No change – continue at FV -

FVTOCI to FVTPL No change – continue at FV Cumulative gain or loss previously recognized

through OCI is removed from other equity and
recognized in profit or loss as a reclassification
adjustment
De-recognition
 When the right to the cash flows
expire or are transferred
 Difference between carrying amount
and consideration received will be
recognised in Profit & Loss
 Gain/Loss previously recognised in
will be reclassified in profit & loss