Ind AS 109: Indian Accounting Standards 109

The Indian Accounting Standard (Ind-AS) provides business entities in the country with a standardised format, to prepare and review financial statements. These rules, which were notified by the Corporate Affairs Ministry in 2015, also include Indian Accounting Standard 109, abbreviated as Ind-AS 109, which deals with the classification, recognition, de-recognition and measurement requirements, for all financial assets and liabilities.

Table of Contents

Ind-AS 109 establishes rules for accounting and reporting of financial instruments to enable the stakeholders to assess the timing and uncertainty of the future cash flow of a business.

See also: All about Indian accounting standard or Ind AS

What are financial assets?

Financial assets include:

Cash deposits in banks/financial institutions.
Equity instruments of any other entity.
A contractual right to receive cash or other financial assets, such as trade, loan, or bond receivables, from another entity.
A contractual right to exchange financial assets or liabilities with another entity, under favourable conditions.
A contract that is a non-derivative and will or may be settled in the entity’s own equity instruments, for which the entity is or may be obliged to receive a number of its own equity instruments.

Classification of financial assets

Businesses have to classify their financial assets, based on their business model. The contractual cash flow pattern of the financial asset would then be measured as under:

At amortised cost: If the financial asset is held to collect contractual cash flows and the financial asset gives rise to cash flows on specified dates that are solely payments of principal and interest on the outstanding principal amount.

At fair value through other comprehensive income (FVTOCI): If the financial asset is held by both, selling financial assets and collecting contractual cash flows. The same is true if the financial asset gives rise to cash flows on specified dates that are solely payments of principal and interest on the outstanding principal amount.

At fair value through profit and loss (FVTPL): If the contract does not meet the above two criteria.

See also: All about Ind AS 116

What are financial liabilities?

A financial liability is a contractual obligation to deliver another financial asset or cash, to another entity. It also includes a contractual obligation to exchange a financial asset or liability with another entity, under conditions that may be unfavourable to the entity. A contract that will/may be settled in an entity’s own equity instruments and is a non-derivative, for which the entity is/may be obliged to deliver a number of its own equity instruments, is also a financial liability.

Classification of financial liabilities

Barring some exceptions, all financial liabilities are measured at amortised cost. The exceptions include:

Contracts of financial guarantee.
Commitments to provide loan/s at interest rates that are below the market rate.
Contingent consideration
Transfers that do not qualify for de-recognition.

FAQ

What is IND 109?

Indian Accounting Standard (Ind-AS) 109 deals with financial assets and liabilities and their recognition, de-recognition, classification and measurement requirements.

What is FVTOCI?

FVTOCI stands for fair value through other comprehensive income.

What does FVTPL mean?

FVTPL stands for Fair Value through Profit and Loss.

Was this article useful?

😃 (0)
😐 (1)
😔 (0)

Sunita Mishra

An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.

In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
[email protected]