Financial Reporting (Ind AS)MCQQuestion 5887 of 507
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Under Ind AS 109, 'Financial Instruments', a financial asset that is a debt instrument shall be measured at Amortised Cost if both of which conditions are met?

Select Your Answer (Keyboard: A, B, C, D)
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Correct Answer

✅ Option A — The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and the contractual terms give rise on specified dates to cash flows that are Solely Payments of Principal and Interest (SPPI)

All Options:

  • AThe financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and the contractual terms give rise on specified dates to cash flows that are Solely Payments of Principal and Interest (SPPI) ✓
  • BThe entity intends to sell the asset within 12 months, and cash flows are tied to an equity index
  • CThe financial asset is designated at Fair Value through Other Comprehensive Income (FVTOCI) by an irrevocable election
  • DThe instrument is a perpetual debt security with discretionary coupon payments

Detailed Solution & Explanation

Classification of Financial Assets under Ind AS 109:
1. **Business Model Test**: The asset is held within a business model whose objective is to hold financial assets in order to **collect contractual cash flows**.
2. **Contractual Cash Flow Characteristics (SPPI) Test**: 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.
3. If both tests are satisfied, the asset must be measured at **Amortised Cost** (unless designated at FVTPL under the fair value option).
Hence, **Option A** is the correct answer.

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