IFRS Jargon

Last update 04/01/2020 Embedded derivatives are part of a financial instrument that also includes a non-derivative host contract. The embedded derivative requires that some portion of the contract’s cash flows be modified in relation to changes in a variable, such as an interest rate, commodity price, credit rating, or foreign exchange rate. If a derivative … Read more

Last update 14/12/2019 Effective interest rate – The rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortised cost of a financial liability. When calculating the effective interest rate, an entity … Read more

Last update 14/12/2019 The effective interest method is used in the calculation of the amortised cost of a financial asset or a financial liability and in the allocation and recognition of the interest revenue or interest expense in profit or loss over the relevant period. But many assets and liabilities valued at amortised cost are … Read more

Last update 10/08/2019 Accounting policy example Financial assets are recognised initially at fair value, normally being the transaction price plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. The subsequent measurement of financial assets depends on their classification, as set out below. The group de-recognises … Read more

Last update 21/08/2019 An economic resource is a right by the reporting entity that has the potential to produce economic benefits. An economic resource in general has the form of an asset. This information is provided in the financial position. Potential to produce economic benefits – Within an economic resource, a feature that already exists and will … Read more

Last update 06/01/2020 Economic life also known as useful life is either Economic life the period over which an asset is expected to be economically usable by one or more users, or Economic life the number of production or similar units expected to be obtained from an asset by one or more users. Economic life … Read more

Last update 14/11/2019 The Expected Credit Losses (ECL) requirement in IFRS 9 makes the initial selection of bonds for fixed income investments by financial institutions much more important, as selecting bonds with good long-term credit health is key to reducing the risk of future P&L fluctuations caused by changes in ECL. This is especially important … Read more

Last update 06/01/2020 EBITDA, Earnings before interest, taxes, depreciation and amortisation is a measure of a company’s overall financial performance and is used as an alternative to simple earnings or net income in some circumstances. Earnings before interest, taxes, depreciation and amortisation, however, can be misleading because it strips out the cost of capital investments … Read more

Last update 07/08/2019 Future economic benefits or service potential distributed by the entity to all or some of its owners, either as a return on investment or as a return of investment. There are two major types of distributions to owners/shareholders: Distributions of profits to holders of equity instruments in proportion to their holdings of … Read more

Last update 20/12/2019 Distinct goods or services is a cornerstone of IFRS 15 Revenue from contracts with customers. Determining a distinct good or service is part of identifying separate performance obligations. An important item to look at is whether a ‘promise to’ in a contract (established to be a contract for accounting purposes in Step 1) is a distinct good or … Read more