Financial instruments - part 2

In this lesson

1. 0:00 Classifying financial investments
2. 1:03 Understanding redeemable bonds and maturity dates
3. 2:03 IFRS 9 classification framework
4. 3:27 Narrative versus numerical exam questions
5. 4:01 Double entry for fair value adjustments
6. 4:55 Amortised cost accounting treatment
7. 6:01 Introduction to IFRS 13 fair value measurement
8. 7:45 Fair value hierarchy and level one inputs
9. 8:29 Level two and level three valuation methods

About this lesson

This lesson walks through a practical example involving shares and bonds, showing you how to distinguish between amortised cost and fair value financial assets, record the appropriate double entries, and understand the fair value measurement hierarchy under IFRS 13. The first part focuses on classification. You'll see how to identify whether a financial instrument should be measured at amortised cost or fair value by examining key characteristics like maturity dates and management intent. Shares without a maturity date held long-term are classified as fair value through OCI, while redeemable bonds with fixed maturity dates are classified as amortised cost. The lesson emphasises that exam questions won't always contain numerical data—sometimes you'll need to produce or select narrative answers based on classification principles alone. Next, you'll work through the double entries for each classification type. For fair value assets, gains or losses go through OCI rather than directly affecting profit. For amortised cost assets, you record interest income using the effective interest rate method, then adjust for cash received, which is the fundamental principle of amortised cost measurement. Finally, you'll explore IFRS 13's fair value measurement hierarchy, which guides you to use the most reliable valuation method available. Level one inputs use actual market values from active markets. Level two inputs use market values of similar items when direct market data isn't available. Level three inputs rely on alternative estimation methods like discounted present value, which involve more judgement. Understanding this hierarchy helps you determine fair values consistently and reduces room for manipulation in financial reporting.

Duration: 10m