EPPA4123 Accounting Theory and Practice

Assets (Intangible & Financial)

Group Legacy:
Au Chong Yee A140176
Tan Yee Shin A140102
Serena Khoo Su Yin A140207
Nor Aini Binti Muhammad A140213
Nurul Balqis Binti Mohd Nasir A140151
Nur Haliza Amirah Binti Halemi A140099

Intangible Assets

MFRS 138
Intangible Asset
Intangible asset is an identifiable nonmonetary asset without physical
substance.
MFRS
138
Para 11,
12

MFRS
138
Para
13

MFRS
138
Para
17

Para11 & 12 -

Identifiable

An asset is identifiable if it either:

Para 11: Separable
Para 12: Arises from contractual or legal rights

Para 13 -

Control

An asset is control if:

Para 13: The entity has the power to obtain future economic benefits

Para 17 -

Future Economic Benefits

An asset is future economic benefit if:

Para 17: An intangible asset may include revenue from sales, cost savings or other
benefits resulting
from the use of asset by the entity

Recognition & Measurement

Para 18: To recognize an item as intangible asset, an
entity has to make sure it meets 2 conditions
(i) The definition of an intangible asset

Para21

(ii)
: The recognition criteria
*Expected future economic benefits will flow to entity
*Cost of asset can be measured reliably

Acquisition of
Intangible Assets

(i) Separate Acquisition

Corporate A

Corporate B

Para 25
-The price reflect expectations about profitability which expected
future economic benefits of asset will flow to the entity.
-The cost can be measured reliably (either in the form of cash or
other monetary assets).

Para 27 - Cost

Purchase Price:
-Import duties
-Non-refundable
purchase taxes
-After deducting trade
discounts and rebates

Directly Attributable
Costs:
-Costs of employee benefits
-Professional fees from
bringing asset to working
condition
-Costs of testing

Expenditures NOT part of the

cost of an intangible asset

Para 29

-Cost of introducing new

product (Advertising &
Promotion)
-Cost of staff training
-Administration and other
general overhead cost

Costs NOT included in the

carrying amount of IA

Para 30

-Costs incurred while asset

capable of operating in the
manner intended by
management has yet to be
brought into use
-Initial operating losses

Example:
Aston Ltd acquires new energy efficient technology that
will significantly reduce its energy costs for
manufacturing. Cost incurred include:
Cost of new solar tech
1,500,000
Trade discount
200,000
Training course for staff in new tech
70,000
Initial testing of new tech
20,000
The cost that can be recognized and capitalized is:
Losses incurred while other parts of plant shut down
Cost of new solar tech
during testing & training
1,500,000
30,000
Less trade discount
(200,000)
Plus initial testing
20,000

(ii) Business Combination

Combine with other entity to share its intangible assets among
them.
Para 33 - Cost of intangible asset is its fair value at
acquisition date.
Subsequent
Expenditure (In Process
R&D
Project)
Shall be
R&D expenditure
that:
accounted for in
(a)Relates to an in-process R&D project
(b)Is incurred after the acquisition of that projectaccordance
with para
Applying the requirements in para 54-62
Research expenditure recognized as expense 54-62
Development expenditure that
Para 57: 6 recognition
in determining if
- does not satisfy para 57 recognized as criteria
expense
developments are
- satisfy para 57 added to the carryingrecognised
amount
as

Sourced from Telekom Malaysia Annual

Report
Annual Report 2014

(iii) Government Grant

When government transfer to an entity intangible asset to
access other restricted resources.

Para 44

Recognized initially at fair value or nominal

value plus any expenditure directly attributable to prepare
asset for intended use.

Airport landing
rights

Gaming
rights

(iv) Exchange of Assets

Para 45
If the fair value of acquired or transferred asset can be
measured
reliably:
Fair Value
Cost

(Acquired Asset)

(Acquired Asset)

If the fair amount

value of acquired asset is unable to be
Cost
Carrying
determined:
(Acquired Asset)
(Acquired Asset)

Sourced from Malaysia Airports Annual

Report

Annual Report 2014

(v) Internally Generated

Intangible Asset
Goodwill
Para 48

proscribes the
recognition of internally
generated goodwill as an
intangible.
Reasons:
*not separable and any costs
incurred are unlikely to be
specifically identifiable as

Other
intangible
assets
Researc
h phase

Developme
nt phase

Research phase
Para 54

No IA arising from research shall be recognized.

Examples of research activities:
(a)Activities aimed at obtaining new knowledge
(b)The search for evaluation and applications of research findings or
knowledge
(c)The search for alternatives for materials, devices, products,
processes, systems or services
(d)The formulation, design, evaluation and final selection of possible
alternatives for new products.

Development phase
Para 57

- IA arising from development shall be recognized when an

entity show the following criteria:
(a)It is technically feasible to complete the IA so that it will be available for
use or sale;
(b)Its intention to complete the IA for use or sale;
(c)Its ability to use or sell the IA;
(d)It can be demonstrated that the IA will generate probable future
economic benefits;
(e)Adequate technical, financial and other resources to complete the
development and to use or sell the IA are available; and
(f)Its ability to measure reliably the expenditure attributable to the IA during
its development.

Not included as the cost of an internally generated IA

Para 67
(a)Selling, administrative and other general overhead
expenditure
(b)Identified inefficiencies and initial operating losses incurred
before the asset achieves planned performance
(c)Expenditure on training staff to operate the asset

Example:
An entity is developing a new production process. During 2015,
expenditure incurred was 1m of which 900,000 was incurred before 1
Dec 2015 and 100,000 was incurred between 1 Dec 2015 and 31 Dec
2015. At 1 Dec 2015, the production process met the criteria for
recognition as an IA. The recoverable amount of know-how embodied in
the process (including future cash outflows to complete the process before
it is available for use) is estimated to be 500,000. What is the cost of
internally generated IA at the end of 2015?
ANSWER: 100,000
EXPLAINATION:
The production process is recognized as an IA at a cost of 100,000 at
the end of 2015 because expenditure incurred since the date when
recognition criteria were met, i.e. 1 Dec 2015. 900,000 incurred
before 1 Dec is recognised as expense and it does not form part of cost
of the production process recognised in the statement of financial
position.

Issue: IAS 38 on capitalization of goodwill

Sourced by: Llyod Austin from Business Review: Accounting for IA,
The University of Auckland
The issue of IAS 38 in 1998 was being discussed due to the
increasing significance of intangible assets since 1980s.
This has been reflected by the increasing proportion of the
companys market value attributable to the existence of intangibles.
However, there is a lack of relation between intangible costs &
specific future revenue.
For example, in Lion Nathans 30 Sept 2005 FS, brands made up
$2,381mil of total assets of $4,064mil.
The brand constituted
-39.3% of market value of
companys debt & equity
-58.6% of market value of equity

Real Life Cases:

Implication of adopting IAS 38 beginning
2005
Vodafone is an UK firm, paid 101,436bil for the equity (net assets) of the
German telecommunications company Mannesman. At the date of
acquisition, Mannesman BS equity had a fair value of 18,408bil. The
surplus of 83,028bil was recorded as goodwill in consolidated FS.
2001-2004 : Goodwill was systematically amortized

2005 : IAS required Vodafone to cease amortizing but test

it for impairment

Thus, impairment of 19.4bil in the goodwill in

Mannesman was recognized. The goodwill in its
Italian and Swedish subsidiaries was impaired by
3.6bil and 515mil, resulting a total impairment
expense of 23.5bil.
Refer to Vodafone Annual Report

Sourced from Vodafone Group Plc

Annual Report

Continued:

Recognized as Expense
Para 68
Expenditure on an IA shall be recognized as an expense when it incurred, unless:
-It forms part of the cost
-The item is acquired in a business combination and cant be recognized as an
intangible asset. It forms part of the amount recognized as goodwill at the
acquisition date.
Examples include:
(a)Start-up activities or opening a new facility/business
(b)Training
(c)Advertising & promotional activities
(d)Relocating or reorganizing of entity

Cost
Model
Revaluation
Model

Para
74

Cost
Model

Carrying
Value

Para
75

Cost of
Intangible
Assets

Revaluation
Model

Carrying
Value

Accumulated
Amortisation

Revalued
Amount

Accumulated
Impairment

Subsequent
Accumulated
Amortisation

Subsequent
Accumulated
Impairment

Revaluation Model
Para

Apply to whole intangible assets even though parts of 77

the asset did not meet the criteria for recognition.

Para

Guidelines
of
Revaluation
Model

Frequency of revaluations depends on the volatility of the79

fair values of intangible assets.
If there is no active market to revalue the assets , the
revalued intangible assets shall be carried at cost less
any accumulated amortization & impairment loss.

Para
81

Para
82

If the fair value of a revalued intangible asset can no

longer be measured by reference to an active market,
the carrying amount of the asset shall be the last
revaluation amount less any subsequent accumulated
amortization and subsequent impairment losses.

Useful Life of Intangible Assets

Para
8

Useful
life???

Period over which an asset is expected

to be available for use by an entity;

OR
The number of production or similar units
expected to be obtained from the asset by
an entity.

Useful Life
Para
88
An entity shall assess the useful life of
intangible
assets to be either:

Finite Useful
Life
Indefinite Useful
Life

Factors Considered in
Determining Useful Life of
Intangible Assets

Finite-lived Intangible Assets

Finite-lived Intangible
Assets

Amortization Methods

Straight-line
Method

Unit of Production
Method

Diminishing Balance
Method

Finite-lived Intangible
Assets

Amortization
Methods
Revenue-based
Method

Appropriate when expected future revenues are a reliable proxy for the
economic benefits embodies in the asset & the pattern in which the
benefits
are
expected
be an
consumed.
A measure
of the
results ofto
using
asset rather than a measure of the economic benefits
embodied within the asset.

Revenues result from using an asset do not necessarily reflect the

consumption of the benefits inherent in the intangible asset itself.

Example:
An entity that has a 5 years exclusive license to distribute a product. In the first year
the entity decides not to distribute the product because it wants to achieve maximum
sales from a previous generation product. In this case, the license represents a single
right to distribute the product for a finite time period and it is appropriate to amortize
the license in the first year because the product could have been distributed, ie the
benefits inherent in the license were available and have diminished by a fifth
regardless of the actions of the entity. This is consistent with the requirement in MFRS
138.97 for amortization to commence when the intangible asset is available for use.

KPMG Publication:
In the Headlines Proposal to ban Revenue-based
Amortization
Publication date: December 2012

IASB proposes to amend IAS 16 (PPE) & IAS 38 (IA) to state that
Revenue-based methods of amortization cannot be used.
Under this method, the profile of amortization expense reflects the
profile of revenues generated through use of the asset.
Media sector often used this method to amortize their IA.
Because films & video games often generate
higher revenues in the earlier years of their life
It tends to accelerate expense
recognition

Ernst & Young Publication:

Impairment of long-lived assets, goodwill & Intangible
assets in Media & Entertainment Industry

Continue
Example of fact pattern:
o An entity has programme rights that last for 4 years, which cost 400 to
acquire.
oThe programme rights are expected to generate total revenue of 800,
and the
programme is expected to run 6 times over 4 years.
oActual revenue
Amortization
as follows:Charges Based on
Reven and
Runsruns are
Different Methods:

ue
Year 1

500

Year 2

200

Year 3

75

Year 4

25

Total

800

KPMG Publication:
In the Headlines Restricting the use of Revenue-based
Amortization
Publication
date: May 2014

On 12 May 2014, the IASB issued amendments to clarify that the Revenue-based
methods are permitted to be used when revenue & consumption of the economic
benefits of IA are highly correlated, or when the IA is expressed as a measure of
revenue.

Effective date: 1 Jan 2016

Highly correlated term was new term that introduced to limit the use of this
method, because revenue is affected by other inputs & processes, selling activities &
changes in sales volumes & prices, which are not directly linked to the consumption of
the economic benefits inherent in the IA.
E.g. The right to operate a toll road until the operator has collected a sum of 10 million.

Implications?
Changing to adopt straight-line amortization method, media companies are
likely to recognize less amortization and therefore higher profit in earlier
years.
However, additional impairment charges may arise when there is
significant decline in future cash flows after the early years of an assets

Finite-lived IA:

Contractual or other legal rights

Para
94

Para
94

Para
96

Significant
Cost?

Renewal Cost = Cost to acquire a

new IA

Example: Amortization of IA arise from Contractual or

Legal Rights

Innovative Gadgets Ltd. patented one of their products at a cost of

$100,000. The patent is enforceable for 10 years, so the legal life is 10
years. However, the company expects to produce the patented product
for only 5 years and expects to replace it with an advanced version at the
end of 5 years. The company uses straight-line method of amortization.
Cost = $100,000
Legal life = 10 years
Expected
useful life = 5 years Amor. Method = Straight-line method
Solution:
Amortization period = 5 years, which is shorter of legal life &
economic life
Amortization per year = $100,000/5 years
= $20,000 per year

Finite-lived IA:

Residual Value

Para
94Residual value (RV) = Zero, unless:
There is a commitment by a third party to purchase
the asset at the end of its useful life

OR
There is an active market:
(i)RV can be determined by reference to the market; and
(ii)The market will exit at the end of the assets useful life

Indefinite-lived Intangible
Assets

Para
88

Para
107
Para
108

Compare recoverable
amount & carrying
amount
Para
109

Retirement & Disposal of IA

Para
112

When an IA shall be derecognized?

On
disposal

OR

When no future economic benefits are expected from its use its
use or disposal

Gain/Loss

Recognize in
P&L

Gain from disposal of IA

Revenue

Source: Malaysia Airports, 2014

Retirement & Disposal of IA

Para
117

Amortization of a finite-lived IA does not cease when the asset is no

alonger used, unless:
bThe asset has been fully depreciated; or
The asset is classified as asset held for sale

Disclosure
The main disclosures are (distinguish between internally-generated
intangibles & other intangibles):

Scenario 1:
No
impairment
loss
recognize.
-Because RV
> CV

Finite
FiniteFinite

Source: Media Prima, 2014

Continue
Source: Media Prima, 2014

Finite

Scenario 1:
Impairment
loss had been
recognized.

Source: Malaysia Airports, 2014

Continue
Source: Malaysia Airports, 2014

Disclosure
An entity shall also disclose:

FINANCIAL
INSTRUMENTS

OVERVIEW
DEFINITIONS

FINANCIAL
INSTRUME
NT

CLASSIFICATIONS &
RECLASSIFICATIONS

MEASUREMENTS

RECOGNITIONS & DERECOGNITIONS

WHAT IS FINANCIAL
INSTRUMENT?
(MFRS 132)

Any contract that gives rise to a financial asset of

Any contract
that
gives
rise to aliability
financial
one entity
and
a financial
or asset
equityof one
entity and a financial
liability
or
equity
instrument
of
instrument of another entity
another entity (MFRS 132)
Financial instrument include
ASSETS

LIABILITY OR EQUITY

Note Receivable

Note payable

Investment in Bond

Bond

Investment in Equity securities

Ordinary shares/ Preference shares

FINANCIAL
ASSET

cash
contractual right
to receive cash or
another financial
asset from another
entity
to exchange financial
assets or financial
liabilities with
another entity under
conditions that are
potentially favourable
to the entity

FINANCI
AL
INSTRUM
ENT

Not
Cover

FINANCIAL
LIABILITY
& EQUITY

CLASSIFICATION
OF
FINANCIAL
ASSET

RULE BASED
APPROACH

VS

PRINCIPLE BASED
APPROACH

MFRS 139
Amortised Cost
Fair Value

MFRS 9

Held to maturity

Amortised Cost

Loans and receivable

Fair Value through Other Comprehensive Income

(FVOCI)

Available for sale

Held for trading

Financial Asset at Fair Value Through Profit or Loss

(FVTPL)

Classification based on:

Test business model entities (holding the to collect contractual cash flows /sell financial
assets)
The characteristics of the contractual cash flows of financial assets

MEASUREME
NT

Busines
s model

MFRS 9 Para
4.1.2
AMORTISED
COST
Objective is to hold
financial asset in
order to collect
contractual cash
flows

Cash flows that are

Terms of solely payments of
the
principle and interest
contract on the principal
amount outstanding

MFRS
Para
FAIR9VALUE
4.1.2A
THROUGH
OTHER
COMPREHENSIV
E INCOME
(FVTOCI)
Objective is achieved by
both collecting
contractual cash flows
and selling financial
assets

Cash flows that are solely

payments of principal
and interest on the
principle amount
outstanding

MFRS
9 Para
FINANCIAL
4.1.4
ASSETS AT FAIR
VALUE
THROUGH
PROFIT OR
LOSS (FVTPL)
A financial asset
shall be measured
at fair value
through profit or
loss unless it is
measured at
amortized cost in
accordance with
paragraph 4.1.2 or
at fair value
through other
comprehensive
income in
accordance with

EXAMPLE 1 : AMORTIZED COST

Company A

Company B

RM 40,000 of the 8%, 5 year bonds for RM

43,412 which provides a 6% return. The bonds
pay interest semiannually
1/1/2015,Company B
Purchases bonds
Hold the securities until the
maturity date that is 31/12/2020
Company holds bonds to
collect their contractual cash
flow

EXAMPLE 2: FVOCI
Company A

Company B

RM 40,000 of the 8%, 5 year bonds for RM

43,412 which provides a 6% return. The bonds
pay interest semiannually
1/1/2015,Company B
Purchases bonds
Hold the securities until the
maturity date that is 31/12/2020
Company holds bonds to
collect their contractual cash
flow and would sell it in
particular circumstances

EXAMPLE 3 : FVTPL
Company A

Company B

RM 40,000 of the 9%, 5 year bonds for RM

46,304,which provides a 11% return.
1/1/2015,Company B Purchases
bonds
Management intends to hold this
debt security until there is a
change in interest rates or the
company requires the cash
Company B sell bonds at the end
of the year. The fair value of bonds
at 31/12/2015 is RM47,200

RECLASSIFICATIO
N
OF
FINANCIAL
INSTRUMENTS

MEASUREMENT
CATEGORY BEFORE
RECLASSIFICATION

MEASUREMENT
CATEGORY AFTER
RECLASSIFICATION

IMPACT

Amortized Cost

FVTPL

FVTPL

Amortized Cost

Amortized Cost

FVOCI

FVOCI

Amortized Cost

Reclassify FinancialAssets at fair

value
Remove cumulative balance from
OCI.
Adjusted amount = Fair value

FVTPL

FVOCI

FV on reclassification date
= new gross carrying amount
Calculate EIR based on new gross
carrying amount

FVOCI

FVTPL

FV on reclassification date
= new gross carrying amount

Recognize difference between

amortized cost and FV in profit or
loss
FV on reclassification date
= new gross carrying amount
Calculate EIR based on new gross
carrying amount
Remeasure to FV, with any
difference recognized in OCI.
EIR determined at Initial
recognition is not adjusted as a
result of reclassification

MEASUREMENTS
OF FINANCIAL
ASSETS

MEASUREMENT OF FINANCIAL
ASSET
MFRS
9
FVTPL
FVOCI
AMORTIZED COST
Initial measurement

Fair Value

Fair value
Transaction Cost

Fair value
Transaction Cost

Subsequent
Measurement

Fair Value

Fair Value

Amortised Cost

Gain and loses

Profit or loss

Other
Comprehensive
Income

Not Recognize

EXAMPLE OF INITIAL MEASUREMENT (MFRS 9)

Price of Debt Securities = RM 1000. Transaction cost = RM 70
Fair Value = RM 1000
FVTPL

FVOCI

AMORTIZED COST

Fair Value

Fair value Transaction Cost

Fair value Transaction Cost

RM 1000

RM 1000 + RM 70
= RM 1070

RM 1000 + RM 70
= RM 1070

RM 70 will be
recognize in
Statement of Profit or
Loss as Expense

EXAMPLE OF SUBSEQUENT MEASUREMENT

FVTPL

FVOCI

AMORTIZED COST

Fair Value

Fair Value

Amortized Cost

RM 1000

RM 1000

RM 1070

RM 70 will be recognize
in Other Comprehensive
Income as Unrealized
Gain or Loss

EXAMPLE OF GAIN AND LOSES

Example : Assume that Fair Value of Debt Securities increased to RM1100 on
31st December 2014 Value

FVTPL

FVOCI

AMORTIZED COST

Fair Value

Fair Value

Not Recognize

RM 1100

RM 1100

RM1100 RM1000 =
RM100
RM 100 will be
recognize in Statement
of Profit or Loss as Gain
in Changes in Fair Value

RM1100 RM1000 =
RM100
RM 100 will be recognize
in Other Comprehensive
Income as Unrealized
holding gain or loss

RECOGNITION
AND
DERECOGNITION
OF FINANCIAL
INSTRUMENTS

RECOGNITION
Describe what, when and how an item should be recorded
in the financial statements
Entity shall recognize a financial asset or financial liability when
and only when the entity becomes a party to the contractual
provisions of the instrument
(MFRS 9, PARA 3.1.1)

REGULAR WAY OF PURCHASE OR

SALE
(B 3.1.3)

A regular way purchase or sale of financial assets is

recognised using either trade date accounting or
settlement date accounting as described in paragraphs
B3.1.5 and B3.1.6

REGULAR WAY OF PURCHASE

OR SALE FINANCIAL ASSETS
(PARA 3.1.2)

TRADE DATE

SETTLEMENT
DATE

TRADE DATE
Trade date is the date an entity commits itself to purchase
or sell an asset. Trade date accounting refer to :
a.
b.

Recognise of an asset to be received and the liability to pay for it on the

trade date
Derecognition of an asset that is sold, recognition of any gain or loss on
disposal and the recognition of a receivable from the buyer for payment
on the trade date

In other words, accountant will record the transactions that

take place on the date at which an agreement has been
entered (the trade date), and not on the date the transaction
has been finalized (the settlement date).

THE SETTLEMENT DATE

(B 3.1.6)
The date an asset is delivered to or by an entity.
Settlement date accounting refer to :
the derecognition of an asset and
The derecognition of recognition of any gain or loss on disposal
an asset on the day on the day that it is delivered by the entity.
When settlement date accounting is
it received by the
applied an entity accounts for any change
entity
in the fair value of the asset to be received
during the period between the trade date
and the settlement date in the same way
In other words, settlement
date is where the actual
as it accounts for the acquired asset.

payment accur

Regular Way of Transaction

(MFRS 9 B3.1.3)
CONTRACT

Delivary
of asset
within a
timefra
me

TRADE DATE

SETTLEMENT DATE

25/11/2014

30/11/2014

Delivery of Financial Asset

5/12/2014

Example of Regular Way

Purchase
Situation
trade date
29/11/2014
04/01/2015

Company APPLE
commits to purchase
a Corporate Bond
from Company
Samsung for RM1000

financial year end

settlement date

31/12/2014
Fair value of the
corporate bond is
RM1002

Fair value of the

corporate bond is RM
1003

Financial Asset Accounted for

Amortized
Cost
ASSUMPTION : Company apple plants to hold the corporate the bond to
maturity (5 years) with the contractual right to
Received fixed interest 8 % annually.

TRADE DATE
ACCOUNTING
29/11/2014

DR

CORPORATE BOND
PAYABLE FOR COMPANY
SMSG

1000

SETTLEMENT DATE
ACCOUNTING
CR

DR

CR

NO ACCOUNT ENTRY
100
0

31/12/2014

31/12/2014

NO ACCOUNT ENTRYRECOGNIZE
BOND
04/01/2015
PAYABLE FOR COMPANY
SAMSUNG
CASH

29/11/2014

NO ACCOUNT ENTRY
04/01/2015

1000
1000

CORPORATE BOND
CASH

RECOGNIZE
BOND
1000
1000

FINANCIAL ASSET ACCOUNTED for

FVTPL
ASSUMPTION : Company Apple plans to classify the corporate bon
TRADE DATE ACCOUNTING

SETTLEMENT DATE
ACCOUNTING
DR

CR

29/11/2014
CORPORATE BOND
PAYABLE FOR COMPANY SMSG

29/11/2014
1000

NO ACCOUNTING ENTRIES
1000

RECOGNI
ZE BOND

31/12/2014
CORPORATE BOND
GAIN/LOSS ON CHANGING
FAIR VALUE ( PnL)

2
2

04/01/2015
PAYABLE FOR COMPANY SMSG
CASH
CORPORATE BOND
GAIN/LOSS ON CHANGING FAIR
VALUE (PnL)

DR

1000
1000
1
1

CR

BOND WAS NOT

YET BEING
TRANSFERRED

31/12/2014
RECEIVABLE
2
GAIN/LOSS ON CHANGING FAIR
VALUE ( PnL)
RECOGNIZE
04/01/2015
BOND
CORPORATE BOND
1003
CASH

1000

RECEIVABLE
2
GAIN/LOSS ON CHANGING FAIR
1
VALUE (PnL)
REVERSE

DERECOGNITION DEFINITION
Derecognition is the removal of a previously recognized
financial asset or liability from an entity's balance sheet.
A financial asset should be derecognized if either the
entity's contractual rights to the asset's cash flows have
expired or the asset has been transferred to a third
party (along with the risks and rewards of ownership).
If the risks and rewards of ownership have not passed to
the buyer, then the selling entity must still recognize
the entire financial asset and treat any consideration
received as a liability.

PRINCIPLES OF
DERECOGNITION
(MFRS
9,
3.2.2)
Only specifically identified cash flows from a
financial asset.

Only a fully proportionate (pro rata) share of the

cash flows from a financial asset.
Only a fully proportionate (pro rata) share of
specifically identified cash flows from a financial
asset .

An entity shall derecognise a

financial asset when
(MFRS 9 B 3.2.4)

The contractual right to

the cash flows from the
financial asset expired

Transfer
the
contractual
rights to receive the cash
flows of the financial asset

Retains the contractual rights

to receive the cash flows of
the financial asset but assume
a contractual obligation to
pay the cash flow to one or
more
recipients
in
an
arrangement that meets the
conditions

Risk and Reward of the Ownership

(MFRS 9, PARA 3.2.6, B3.2.4)

Derecognition of Financial Assets

Start
Entire asset or
part?
Rights
to
cash
flow
expire
d?
Yes

No

Transf
er of
rights
?

Yes
No

Oblig
ation
to
pay
CF?

Yes

Risk/R
eward
transf
er?

No

Risk/Re
ward
retaine
d?

No

Yes
No

Derecognition

Yes
Derecognition

Continue to recognize

Contr
ol
retain
ed?

No
Yes

Derecognition

Continue to recognize