At past AASB 139 provide that the financial assets are classified based on four categories, each category apply to different conditions and measurement standards, the new standard AASB 9 simplify the classification and measurement of financial assets base on two categories: the objective of the entity’s business model for managing the financial assets; and the characteristics of the contractual cash flow.
Under AASB 9, the entity’s business model for managing the financial assets is a new accounting concept, which applying to classify the financial instruments. The evaluation of this model is based on how key personnel actually business, rather than the intents of management for specific financial assets. It means that it require more strict test, and the entity may require to provide further evidence or accumulate more historical analysis.
AASB 9 application guidance determines the classification and measurement of Financial Assets under “business model”, appendix B4.1 requires that an entity classify financial assets and measured it base on amortised cost or fair under the entity’s business model for managing the financial assets. Appendix B4.2 said that this model does not depend on intention of management for an individual instrument. Moreover, an entity’s business model for managing its financial instruments may more than one. Therefore, the reporting entity level may not require to determine when classification. Appendix B4.3 provides that an entity’s business model purpose to hold financial assets in order to collect contractual cash flows, the entity need not hold those instruments until maturity. The entity may sell a financial asset if the financial assets not meet the investment policy of entity; or an insurer reflect a change in expected by adjust its investment portfolio; or an entity needs to fund capital expenditures.
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