Financial Instruments: Recognition and …

1 STATUTORY BOARD SB-FRS 39 Financial REPORTING STANDARD Financial instruments : Recognition and measurement This version of the Statutory Board Financial Reporting Standard does not include amendments that are effective for annual periods beginning after 1 January 2013. This standard is equivalent to FRS 39 Financial instruments : Recognition and measurement issued by the Accounting Standards Council which is effective as at 1 January 2013. SB-FRS 39 CONTENTS OBJECTIVE SCOPE DEFINITIONS EMBEDDED DERIVATIVES Recognition AND DERECOGNITION Initial Recognition Derecognition of a Financial asset Transfers that qualify for derecognition Transfers that do not qualify for derecognition Continuing involvement in transferred assets All transfers Regular way purchase or sale of a Financial asset Derecognition of a Financial liability measurement Initial measurement of Financial assets and Financial liabilities Subsequent measurement of Financial assets Subsequent measurement of Financial liabilities Reclassifications Gains and losses Impairment and uncollectibility of Financial assets Financial

2 Assets carried at amortised cost Financial assets carried at cost Available-for-sale Financial assets HEDGING Hedging instruments Qualifying instruments Designation of hedging instruments Paragraphs 1 2 8 10 14 14 15 24 29 30 36 38 39 43 43 45 47 50 55 58 63 66 67 71 72 72 74 2 SB-FRS 39 Hedged items Qualifying items Designation of Financial items as hedged items Designation of non- Financial items as hedged items Designation of groups of items as hedged items Hedge accounting Fair value hedges Cash flow hedges Hedges of a net investment EFFECTIVE DATE AND TRANSITION WITHDRAWAL OF OTHER PRONOUNCEMENTS APPENDIX A: Application guidance Scope Definitions Designation as at fair value through profit or loss Effective interest rate Derivatives Transaction costs Financial assets and Financial liabilities held for trading Held-to-maturity investments Loans and receivables Embedded derivatives instruments containing embedded derivatives Recognition and derecognition Initial Recognition Derecognition of a Financial asset Transfers that qualify for derecognition Transfers that do not qualify for derecognition Continuing involvement in transferred assets All transfers 78 78 81 82 83 85 89 95 102 103 109 AG1 AG4B AG4B AG5 AG9 AG13 AG14 AG16 AG26 AG27 AG33A AG34 AG34 AG36 AG45 AG47 AG48 AG49 3

3 SB-FRS 39 Examples Regular way purchase or sale of a Financial asset Derecognition of a Financial liability measurement Initial measurement of Financial assets and Financial liabilities Subsequent measurement of Financial assets No active market: equity instruments Gains and losses Impairment and uncollectibility of Financial assets Financial assets carried at amortised cost Interest income after impairment Recognition Hedging Hedging instruments Qualifying instruments Hedged items Qualifying items Designation of Financial items as hedged items Designation of non- Financial items as hedged items Designation of groups of items as hedged items Hedge accounting Assessing hedge effectiveness Fair value hedge accounting for a portfolio hedge of interest rate risk Transition APPENDIX B: Amendments to other pronouncements ILLUSTRATIVE EXAMPLE (See separate document) IMPLEMENTATION GUIDANCE (See separate document) AG51 AG53 AG57 AG64 AG64 AG66 AG80 AG83 AG84 AG84 AG93 AG94 AG94 AG94 AG98 AG98 AG99C AG100 AG101 AG102 AG105 AG114 AG133 4 SB-FRS 39 Statutory Board Financial Reporting Standard 39 Financial instruments : Recognition and measurement (SB-FRS 39) is set out in paragraphs 1 110 and Appendices A and B.

4 All the paragraphs have equal authority. SB-FRS 39 should be read in the context of its objective, the Preface to Statutory Board Financial Reporting Standards and the Conceptual Framework for Financial Reporting. SB - FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance. 5 SB-FRS 39 6 SB-FRS 39 Statutory Boards Financial Reporting Standard 39 Financial instruments .

5 Recognition and measurement Objective 1 The objective of this Standard is to establish principles for recognising and measuring Financial assets, Financial liabilities and some contracts to buy or sell non- Financial items. Requirements for presenting information about Financial instruments are in S B - FRS 32 Financial instruments : Presentation. Requirements for disclosing information about Financial instruments are in SB-FRS 107 Financial instruments : Disclosures. Scope 2 This Standard shall be applied by all entities to all types of Financial instruments except: (a) those interests in subsidiaries, associates and joint ventures that are accounted for under SB-FRS 27 Consolidated and Separate Financial Statements, SB-FRS 28 Investments in Associates and S B - FRS 31 Interests in Joint Ventures.

6 However, entities shall apply this Standard to an interest in a subsidiary, associate or joint venture that according to S B - FRS 27, S B - FRS 28 or S B - FRS 31 is accounted for under this Standard. Entities shall also apply this Standard to derivatives on an interest in a subsidiary, associate or joint venture unless the derivative meets the definition of an equity instrument of the entity in SB-FRS 32. (b) rights and obligations under leases to which SB-FRS 17 Leases applies. However: (i) lease receivables recognised by a lessor are subject to the derecognition and impairment provisions of this Standard (see paragraphs 15 37, 58, 59, 63 65 and Appendix A paragraphs AG36 AG52 and AG84 AG93); (ii) finance lease payables recognised by a lessee are subject to the derecognition provisions of this Standard (see paragraphs 39 42 and Appendix A paragraphs AG57 AG63); and (iii) derivatives that are embedded in leases are subject to the embedded derivatives provisions of this Standard (see paragraphs 10 13 and Appendix A paragraphs AG27 AG33).

7 (c) employers rights and obligations under employee benefit plans, to which SB FRS 19 Employee Benefits applies. (d) Financial instruments issued by the entity that meet the definition of an equity instrument in SB-FRS 32 (including options and warrants) or that are required to be classified as an equity instrument in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D of SB-FRS 32. However, the holder of such equity instruments shall apply this Standard to those instruments , unless they meet the exception in (a) above. (e) rights and obligations arising under (i) an insurance contract as defined in SB-FRS 104 Insurance Contracts, other than an issuer s rights and obligations arising under an insurance contract that meets the definition of a Financial guarantee contract in paragraph 9, or (ii) a contract that is within the scope of SB-FRS 104 because it contains a discretionary participation feature.

8 However, this Standard applies to a derivative that is embedded in a contract within the scope of SB - FRS 104 if the derivative is not itself a contract within the scope of 7

9 SB-FRS 39 SB-FRS 104 (see paragraphs 10 13 and Appendix A paragraphs AG27 AG33 of this Standard). Moreover, if an issuer of Financial guarantee contracts has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting applicable to insurance contracts, the issuer may elect to apply either this Standard or S B - FRS 104 to such Financial guarantee contracts (see paragraphs AG4 and AG4A). The issuer may make that election contract by contract, but the election for each contract is irrevocable. (f) [deleted] (g) any forward contract between an acquirer and a selling shareholder to buy or sell an acquiree that will result in a business combination at a future acquisition date. The term of the forward contract should not exceed a reasonable period normally necessary to obtain any required approvals and to complete the transaction.

10 (h) loan commitments other than those loan commitments described in paragraph 4. An issuer of loan commitments shall apply S B - FRS 37 Provisions, Contingent Liabilities and Contingent Assets to loan commitments that are not within the scope of this Standard. However, all loan commitments are subject to the derecognition provisions of this Standard (see paragraphs 15 42 and Appendix A paragraphs AG36 AG63). (i) Financial instruments , contracts and obligations under share-based payment transactions to which SB-FRS 102 Share-based Payment applies, except for contracts within the scope of paragraphs 5 7 of this Standard, to which this Standard applies. (j) rights to payments to reimburse the entity for expenditure it is required to make to settle a liability that it recognises as a provision in accordance with SB-FRS 37, or for which, in an earlier period, it recognised a provision in accordance with FRS 37.