Ind AS 109: Financial Instruments
Ind AS 109 governs classification, measurement and impairment of financial assets and liabilities, and hedge accounting — built around the business-model and cash-flow (SPPI) tests and the expected credit loss model.
- Standard
- Ind AS 109
- Categories
- AC/FVOCI/FVTPL
- Impairment
- ECL model
- Tested at
- CA Final
Applicability
Applies to all entities under the Ind AS framework for their financial instruments; read with Ind AS 32 (presentation) and Ind AS 107 (disclosures). Central to CA Final Financial Reporting.
Key points to remember
- Financial assets are classified at amortised cost, FVOCI or FVTPL based on the entity's business model and whether cash flows are solely payments of principal and interest (SPPI).
- Impairment uses a forward-looking expected credit loss (ECL) model — 12-month ECL, moving to lifetime ECL on significant increase in credit risk.
- Financial liabilities are generally at amortised cost; own-credit gains on FVTPL-designated liabilities go to OCI.
- Embedded derivatives, derecognition rules and hedge accounting (fair value, cash flow, net investment hedges) are covered.
- Effective interest rate spreads interest income/expense over the instrument's life.
How the exam tests it
CA Final Financial Reporting tests classification cases (amortised cost vs FVOCI vs FVTPL), EIR computations and ECL provisioning; AFM also leans on these concepts for valuation questions.
Related standards
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Talk to usWhat is the SPPI test?
A financial asset passes the SPPI test if its contractual cash flows are solely payments of principal and interest on the principal outstanding. Passing SPPI plus a hold-to-collect business model allows amortised cost classification.
What is the expected credit loss model?
A forward-looking impairment model: entities provide for 12-month expected credit losses from initial recognition, and for lifetime expected losses once credit risk has increased significantly. For trade receivables, a simplified lifetime-ECL approach applies.
When is a financial asset measured at FVTPL?
When it fails the amortised-cost and FVOCI criteria — for example, held-for-trading instruments or assets failing the SPPI test — or when the fair value option is used to eliminate an accounting mismatch.