Last update 17/08/2019
Held-to-maturity financial assets have passed the SPPI test (solely payment of principal and interest) and the business model test (Held to collect). Held-to-maturity financial assets are measured at amortized cost, using the effective interest method, less any impairment.
IFRS Definition- Amortised cost: The amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance.
The effective interest rate method uses the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.
Impairment – At initial recognition of a financial asset, an entity recognises a loss allowance equal to 12-month expected credit losses.
After initial recognition, the three stages under the proposals would be applied each reporting date as follows:
- Stage 1: Credit risk has not increased significantly since initial recognition – continue recognising the (updated) 12-month expected credit losses
- Stage 2: Credit risk has increased significantly since initial recognition – recognise lifetime expected losses, with interest revenue being calculated based on the gross amount of the asset
- Stage 3: There is objective evidence of impairment as at the reporting date – recognise lifetime expected losses, with interest revenue being based on the net amount of the asset (that is, based on the impaired amount of the asset).
See also Impairment – Expected credit losses on financial assets, Effective interest method, or amortised costs.
Accounting policy example
Financial assets are recognized 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 derecognizes financial assets when the contractual rights to the cash flows expire or the financial asset is transferred to a third party.
Held-to-maturity financial assets
Held-to-maturity financial assets are measured at amortized cost, using the effective interest method, less any impairment.
Derived from BP Plc’s Financial Statements 2017
https://www.bp.com/en/global/corporate/investors/results-and-reporting/annual-report.html
Held-to-maturity financial assets – Example
Held-to-maturity financial assets – Example
Held-to-maturity financial assets – Example Held-to-maturity financial assets – Example Held-to-maturity financial assets – Example Held-to-maturity financial assets – Example