MFRS 9, MFRS 139, Mpers Differences (Measurement & Classification) PDF

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The measurement and classification differences for 3 accounting standards which are MFRS 9, MFRS 139 and MPERS.

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Compare accounting treatment between MFRS 9, MFRS 139 and MPERS for financial instruments regarding classification and measurement of financial assets and financial liabilities. MFRS 9 For the classification of financial assets: •

•

An entity shall classify financial assets as subsequently measured at amortized cost, fair value through other comprehensive income or fair value through profit or loss on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. A financial asset shall be measured at amortized cost if both of the following conditions are met: a) The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows. b) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the

MFRS 139 CLASSIFICATION The financial assets and financial liabilities are classified differently. The financial assets are classified into 5 categories which are: 1) 2) 3) 4) 5)

Held-for-trading. Designated at fair value. Available-for-sale. Held-to-maturity. Loan at receivable.

The financial liabilities have 3 categories which are: 1) Held-for-trading. 2) Designated at fair value. 3) Measured at amortised cost (ACCA, 2006).

MPERS The classifications of MPERS for basic financial instruments are generally the same as those in MFRS 139. However, MPERS does not encompass rigid or rulebased classification requirements which means that it is a simplified version of MFRS 139. MPERS deals with basic financial instruments. Basic financial instruments include: 1) Cash. 2) Debt instruments (such as receivables and payables). 3) Commitments to receive loans (with specified conditions). 4) Investments in nonconvertible preference shares and non-puttable ordinary shares or preference shares.

principal amount outstanding. •

A financial asset shall be measured at fair value through other comprehensive income if both of the following conditions are met: a) The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. b) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

•

A financial asset shall be measured at fair value through profit or loss unless it is measured at amortized cost or at fair value through other comprehensive income.

For the classification of financial liabilities: An entity shall classify all financial liabilities as subsequently measured at amortised cost, except for: a) Financial liabilities at fair value through profit or loss. Such liabilities,

b)

c) d)

e)

including derivatives that are liabilities, shall be subsequently measured at fair value. Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies. Financial guarantee contracts. Commitments to provide a loan at a below-market interest rate. Contingent consideration recognised by an acquirer in a business combination to which MFRS 3 applies. Such contingent consideration shall subsequently be measured at fair value with changes recognised in profit or loss (MASB , 2014).

Financial assets shall be measured at amortised cost, fair value through comprehensive income or fair value through profit or loss (Board, 2014). Amortised cost method: • Amortised cost is the cost of an asset or liability adjusted by using the effective interest rate over the useful life of an asset or a liability. If the financial asset is not carried at fair value through profit or loss,

MEASUREMENT Measurement under financial assets: •

•

Held-for-trading and designated at fair value: a) Initially measured at fair value and the changes in the fair value will be recognised as a gain or a loss in the Statement of Profit or Loss. Available-for-sale: a) Initially measured at fair value and the changes in the fair

There are two measurements for basic financial instruments. There are: At cost or amortised cost model: a) All basic financial instruments shall be measured at cost or amortised cost model. Some of them are debt instruments, such as investments in quoted bonds, regardless of management’s intention and there is no option for fair value designation.

we must carry out impairment test. If any impairment is identified, it must be recognised in Statement of Profit or Loss and Other Comprehensive Income. This method is applied to debt instruments only. Fair value through comprehensive income method: • The changes in value will be recognised in Statement of Profit or Loss and Other Comprehensive Income as a gain or a loss. This method is applied to equity instruments which the entity intends to retain the ownership but not for held-fortrading. Fair value through profit or loss method: • The financial asset is initially measured at fair value. Financial assets measured under fair value through profit or loss include financial assets held-for-trading purposed, derivatives and debt instruments.

value will be recognised as a gain or a loss in the Statement of Other Comprehensive Income. •

Held-to-maturity and loan at receivable: a) Initially measured at fair value and the subsequent measurement for both methods must be recognised as amortised cost.

Measurement under financial liabilities: •

•

Held-for-trading and designated at fair value: a) Initially measured at fair value and the changes in the fair value will be recognised as a gain or a loss in the Statement of Profit or Loss. Amortised cost: a) Initially measured at fair value and the subsequent measurement must be recognised as amortised cost.

In order to enable a financial asset or a financial liability to be recognised in the financial statement, the entity must be a party to the financial instrument contract.

REFERENCES

At fair value through profit or loss: a) The only exception to basic financial instruments, which is investments in straight ordinary or preference shares (or similar equity investments), must be measured at fair value through profit or loss but only if there is a traded price or the fair value can otherwise be measured reliably without excessive cost or effort. MPERS has simplified the requirement for initial measurement where the transaction price (i.e. the cost), including an entry price, is used and there will be no gain or loss arising on initial recognition of a basic financial asset or a financial liability. The entity measures the financial asset or financial liability at the present value of the future payments discounted at a market rate of interest for a similar riskclass instrument if the arrangement constitutes a financing arrangement, such as an inter-company loan without interest (Tong, 2015).

ACCA. (2006, October 1). IAS 39 Financial Instruments ACCA Global. Retrieved December 9, 2019 from IAS 39 Financial Instruments ACCA Global: https://www.accaglobal.com/uk/en/member/discover/cpd-articles/corporatereporting/ias39-instruments.html Board, M. A. (2014). Malaysian Financial Reporting Standard 9 Financial Instrument. Malaysian Accounting Standards Board, July. Tong, T. L. (2015). A Comparative Analysis of PERS, MPERS and MFRS Frameworks. MPERS, 12-13. MASB . (2014, July). Malaysian Financial Reporting Standard 9. Retrieved December 10, 2019 from Malaysian Accounting Standards Board: http://www.masb.org.my/pdf.php?pdf=MFRS_92014_17Nov2014.pdf&file_path=pdf MASB. (2011, November). Malaysian Financial Reporting Standard 139. Retrieved December 10, 2019 from Malaysian Accounting Standards Board: http://www.masb.org.my/pdf.php?pdf=MFRS%20139%20042015.pdf&file_path=pdf _file Tong, T. L. (2014, February). A Comparative Analysis of PERS, MPERS and MFRS Frameworks. Retrieved December 10, 2019 from Malaysian Accounting Standards Board: http://www.masb.org.my/pdf.php?pdf=MPERS%20article_A%20Comparative%20A nalysis%20of%20PERS%20MPERS%20and%20MFRS%20Frameworks.pdf&file_pa th=pdf...