| 11.14 | At the end of each reporting period, an entity shall measure financial instruments as follows, without any deduction for transaction costs the entity may incur on sale or other disposal: |
| (a) | Debt instruments that meet the conditions in paragraph 11.8(b) or paragraph 11.8(bA) shall be measured at amortised cost using the effective interest method. Paragraphs 11.15 to 11.20 provide guidance on determining amortised cost using the effective interest method. [AMD 83] |
| (i) | For a financing transaction measured initially at transaction price in accordance with paragraph 11.13A, the effective interest rate is the interest rate implicit in the contract, which may be zero. |
| (ii) | For a non-interest bearing debt instrument that is payable or receivable within one year on normal business terms, amortised cost shall be measured at the undiscounted amount of the cash or other consideration expected to be paid or received (ie net of impairment – see paragraphs 11.21 to 11.26). |
| (iii) | Fora financing transaction (see paragraph 11.13) that is not accounted for in accordance with paragraph 11.13A the effective interest rate is the market rate of interest for a similar debt instrument used to determine initial measurement adjusted to amortise directly attributable transaction costs. |
| (b) | Debt instruments that meet the conditions in paragraph 11.8(b) and commitments to receive a loan and to make a loan to another entity that meet the conditions in paragraph 11.8(c) may upon their initial recognition be designated by the entity as at fair value through profit or loss (the Appendix to Section 2 provides guidance on determining fair value) provided doing so results in more relevant information, because either: [AMD 8] |
| (i) | it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as 'an accounting mismatch') that would otherwise arise from measuring assets or debt instruments or recognising the gains and losses on them on different bases; or |
| (ii) | a group of debt instruments or financial assets and debt instruments is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity's key management personnel (as defined in Section 33 Related Party Disclosures, paragraph 33.6), for example members of the entity's board of directors and its chief executive officer. |
| (c) | Commitments to receive a loan and to make a loan to another entity that meet the conditions in paragraph 11.8(c) shall be measured at cost (which sometimes is nil) less impairment. |
| (d) | Investments in non-derivative instruments that are equity of the issuer shall be measured as follows (the Appendix to Section 2 provides guidance on determining fair value): |
| For investments in another group entity that are within the scope of this section, the following accounting policy choice shall apply to all investments in a single class, either: |
| (i) | at cost less impairment; |
| (ii) | at fair value with changes in fair value recognised in other comprehensive income (or profit or loss) in accordance with paragraphs 17.5E and 17.15F; or |
| (iii) | at fair value with changes in fair value recognised in profit or loss. |
| For all other investments: |
| (iv) | if the instruments are publicly traded or their fair value can otherwise be measured reliably (see paragraph 2A.4), the investment shall be measured at fair value with changes in fair value recognised in profit or loss; and |
| (v) | all other such investments shall be measured at cost less impairment. |
| Impairment or uncollectability must be assessed for financial assets in (a), (c), (d)(i) and (d)(v) above. Paragraphs 11.21 to 11.26 provide guidance. [AMD 306] |
| AMD 83 Amendment Paragraph 11.14(a) amended by Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland - Small entities and other minor amendments (issued July 2015) Effective date 01/01/2016 (Earlier application permitted subject to certain conditions - see paragraph 1.15) Previous text (a) Debt instruments that meet the conditions in paragraph 11.8(b) shall be measured at amortised cost using the effective interest method. Paragraphs 11.15 to 11.20 provide guidance on determining amortised cost using the effective interest method. Debt instruments that are payable or receivable within one year shall be measured at the undiscounted amount of the cash or other consideration expected to be paid or received (ie net of impairment—see paragraphs 11.21 to 11.26) unless the arrangement constitutes, in effect, a financing transaction (see paragraph 11.13). If the arrangement constitutes a financing transaction, the entity shall measure the debt instrument at the present value of the future payments discounted at a market rate of interest for a similar debt instrument. |
| AMD 8 Amendment Paragraph 11.14(b) amended by FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (issued July 2014) Effective date 01/01/2015 Previous text (b) Debt instruments that meet the conditions in paragraph 11.8(b) may upon their initial recognition be designated by the entity as at fair value through profit or loss (paragraphs 11.27 to 11.32 provide guidance on fair value) provided doing so results in more relevant information, because either: |
| AMD 306 Amendment Paragraph 11.14 amended by Amendments to FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland – Triennial review 2017 – Incremental improvements and clarifications (issued December 2017) Effective date 01/01/2019 Previous text 11.14 At the end of each reporting period, an entity shall measure financial instruments as follows, without any deduction for transaction costs the entity may incur on sale or other disposal: (a) Debt instruments that meet the conditions in paragraph 11.8(b) shall be measured at amortised cost using the effective interest method. Paragraphs 11.15 to 11.20 provide guidance on determining amortised cost using the effective interest method. Debt instruments that are payable or receivable within one year shall be measured at the undiscounted amount of the cash or other consideration expected to be paid or received (ie net of impairment—see paragraphs 11.21 to 11.26) unless the arrangement constitutes, in effect, a financing transaction (see paragraph 11.13). If the arrangement constitutes a financing transaction, the entity shall measure the debt instrument at the present value of the future payments discounted at a market rate of interest for a similar debt instrument. (b) Debt instruments that meet the conditions in paragraph 11.8(b) and commitments to receive a loan and to make a loan to another entity that meet the conditions in paragraph 11.8(c) may upon their initial recognition be designated by the entity as at fair value through profit or loss (paragraphs 11.27 to 11.32 provide guidance on fair value) provided doing so results in more relevant information, because either: (i) it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as 'an accounting mismatch') that would otherwise arise from measuring assets or debt instruments or recognising the gains and losses on them on different bases; or (ii) a group of debt instruments or financial assets and debt instruments is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity's key management personnel (as defined in Section 33 Related Party Disclosures, paragraph 33.6), for example members of the entity's board of directors and its chief executive officer. (c) Commitments to receive a loan and to make a loan to another entity that meet the conditions in paragraph 11.8(c) shall be measured at cost (which sometimes is nil) less impairment. (d) investments in non-convertible preference shares and non-puttable ordinary shares or preference shares shall be measured as follows (paragraphs 11.27 to 11.32 provide guidance on fair value): (i) if the shares are publicly traded or their fair value can otherwise be measured reliably, the investment shall be measured at fair value with changes in fair value recognised in profit or loss; and (ii) all other such investments shall be measured at cost less impairment. Impairment or uncollectability must be assessed for financial assets in (a), (c) and (d)(ii) above. Paragraphs 11.21 to 11.26 provide guidance. |
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