Chapter CFM21860
| Published date | 16 April 2016 |
| Record Number | CFM21860 |
Initial measurement
When a financial asset or liability is initially recognised in a company’s financial statements, a company must measure it at its fair value (see CFM21160). In the case of assets and liabilities not in the FVTPL category (see below), this also includes transaction costs (see CFM21630) that are directly attributable to the acquisition or issue of the financial asset.
The fair value of the financial asset at initial recognition is usually the transaction price. Where this is not the case the company shall account for the instrument at initial recognition as follows:
- At the quoted price on an active market of an identical asset or based on a valuation technique that uses only data from observable markets. The difference to the transaction price is recognised as a gain or loss in the company’s profit or loss account.
- Where the above information is not available (as no active market or observable data exists) the difference between the fair value and the transaction price is deferred from being recognised in profit or loss until other market participants would take into account the difference when pricing the asset or liability
An exception exists to the above requirements for initial measurement at fair value for trade receivables;
- that do not contain a significant financing component, which are measured at their transaction price as determined by IFRS 15 (‘Revenue from Contracts with Customers’); or
- where the company has applied the practical expedient to use transaction price as the customer is expected to settle the receivable within one year.
Where there is a difference between the transaction price and the fair value of a financial instrument on inception, careful consideration will be needed to identify the reason for the difference and how it should be accounted for.
Subsequent measurementSubsequent measurement of a financial asset and liability depends on how that asset or liability was classified by applying the rules outlined at CFM21840 and CFM21850
- A financial asset or liability...
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