Ind AS 109, Financial Instruments, establishes principles for the recognition, measurement, presentation, and disclosure of financial instruments. It applies to various types of financial instruments, including financial assets, financial liabilities, and some contracts to buy or sell non-financial items.
The standard introduces a classification and measurement framework for financial assets based on their contractual cash flow characteristics and the business model in which they are held. Financial assets are classified into three categories: amortized cost, fair value through other comprehensive income (FVOCI), and fair value through profit or loss (FVTPL). The classification determines how these assets are initially recognized and subsequently measured.
Ind AS 109 also addresses the impairment of financial assets. It requires entities to recognize expected credit losses on financial assets, including loans, trade receivables, and debt securities. The standard introduces an “expected credit loss” model that replaces the previous “incurred loss” model and requires entities to consider all available information when estimating credit losses.
Additionally, the standard provides guidance on the derecognition of financial assets and financial liabilities, including the transfer of financial assets and when to remove them from the balance sheet. It also establishes rules for hedge accounting, allowing entities to mitigate the risks associated with their financial instruments through hedging activities.
Ind AS 109 requires extensive disclosures about financial instruments to provide users of financial statements with relevant information about an entity’s exposure to risks, the nature and extent of financial instruments, and the impact of those instruments on the entity’s financial position and performance.
