How are financial instruments classified under IFRS 9?

How are financial instruments classified under IFRS 9?

• A. Based solely on their market value
• B. Into categories such as amortized cost and fair value
• C. Into tangible and intangible assets
• D. Only according to their liquidity

Answer: (B)

Financial instruments under IFRS 9 are classified into categories based on the entity's business model for managing the financial instruments and the contractual cash flow characteristics of the financial assets. This results in two primary measurement categories: amortized cost and fair value. - Financial assets that are held within a business model whose objective is to collect contractual cash flows are measured at amortized cost if the cash flows represent solely payments of principal and interest on the principal amount outstanding. - Conversely, financial assets that are held for trading or those that do not meet the criteria for amortized cost are measured at fair value. This classification allows entities to reflect how they manage their financial instruments and the risks associated with them. This framework ensures that financial reporting provides users with useful information relevant to the financial instruments held by the entity. The other options do not align with the classifications established under IFRS 9, making them unsuitable as responses.

Financial instruments under IFRS 9 are classified into categories based on the entity's business model for managing the financial instruments and the contractual cash flow characteristics of the financial assets. This results in two primary measurement categories: amortized cost and fair value.

• Financial assets that are held within a business model whose objective is to collect contractual cash flows are measured at amortized cost if the cash flows represent solely payments of principal and interest on the principal amount outstanding.

• Conversely, financial assets that are held for trading or those that do not meet the criteria for amortized cost are measured at fair value. This classification allows entities to reflect how they manage their financial instruments and the risks associated with them.

This framework ensures that financial reporting provides users with useful information relevant to the financial instruments held by the entity. The other options do not align with the classifications established under IFRS 9, making them unsuitable as responses.