Hi Silvia, we have a subsidiary in a foreign country and the subsidiary needed to take a loan. In most cases, you would do it straight-line over the term of the loan. Example 1. I would appreciate your advice on how we can account for the ‘gain’ upon transition as currently all literature direct us to decrease in the retained earning, upon adoption of IFRS 9 Hi Selvia, Financial guarantees: Subsequent measurement. file:///C:/Users/DrZai/Downloads/WISE%20PACIFIC%20AGREEMENT%20SIGNED%20COPY%20DR%20ZAIN.pdf. Debit Profit or loss: The fair value of your guarantee; Credit Liabilities from financial guarantees: The fair value of your guarantee, The loss allowance determined as expected credit loss under IFRS 9 and. Very good article! Hi Silvia, Hi Silvia, Hello Silvia, let’s say the parent company charges a guarantee fee to its subsidiary, How does the Parent company accounts for the FCG under IFRS? what will be the accounting entry for Claim settlement against Performance Guarantee provided to Customer? The shares form a pledge to the loan facility provided by the financial institution. Hi Syed, in general you are right, it seems that your guarantees issued would be financial liabilities. Sometimes these two events take place in different quarters. Debit Liabilities from financial guarantees: CU 200 (1 000/5); Credit Profit or loss – Income from financial guarantees: CU 200. The amended standard and new standard are effective for periods beginning on or after 1 January 2017 and 1 January 2018, respectively. this is off topic, please write me a message via my Contact form. Hello Silvia, For example, I am providing guarantee of 100mil to my subsidiaries but, my subsidiaries might not be utilizing all the guarantee amount when the contract is issue. If the debtor pays 5% with the guarantee and the market interest rate on unguaranteed loans is 6%, then the fair value of the guarantee is the present value of the difference in interests charged on guaranteed and unguaranteed loans. If no premium is received (which is often the case in intra-group situations), the fair value must be determined using a method that quantifies the economic benefit of the guarantee to the holder. Hi Silva, Should it be based on utilization of the guarantee only? In most cases, you would do it straight-line over the term of the loan. Effective date The illustrative financial statements include the disclosures required by the Singapore Companies Act, SGX-ST Listing Manual, and FRSs and INT FRSs that are issued as at July 31, 2014. Does it have any credit risk? Best, S. We would like to discuss for our Capital Repayment Financial Guarantee Bond procurement with the consultant of IFRS 15 who probably has better understanding and conversant with the process. Hi Silvia, Additionally, the new leases standard has specific requirements as to how leasing activity is to be presented in the basic financial statements. IFRS 9 retains the same financial guarantee definition as IAS 39, ie a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument. Also, we issued a general guarantee to support our subsidiary in case of the negative equity – should we also account for this guarantee? In these situations, the customer's bank might guarantee the customer's payment, meaning that the bank will pay the vendor if the customer does not. The loan is provided to DEF Ltd for 3 years at 8%. under licence during the term and subject to the conditions contained therein. We asked from Bank to issue Guarantee to our supplier and we keep fixed deposit with bank to cover those bank guarantee . Check your inbox or spam folder now to confirm your subscription. > Hermes covered endstream endobj startxref Financial statement footnotes are explanatory and supplemental notes that accompany a firm’s financial statements.The exact nature of these footnotes varies, depending upon the accounting framework used to construct the financial statements (such as GAAP or IFRS).Footnotes are an integral part of the financial statements, so you must issue them to users along with the financial statements. If not is there any specific accounting treatment for this pledge? What interest rate does the debtor pay with the guarantee? In this case, we have to apply some alternative methods in line with IFRS 13 Fair value measurement. 4. Hi Silvia, It depends so let me give you a few hints. My question is The guarantees are not off balance product and pricing is commission based – for example charge the customer 2% quarter commission. I am currently involved in an IFRS 9 implementation project at a bank. Thanks in advance. IAS 2 Cost Formulas: Weighted average, FIFO or FOFO?! An Example of a Financial Guarantee . 036: Contract asset vs. account receivable. At the beginning of 2018 on the basis of IFRS 9, the bond is recorded in the trading portfolio and the CDS aswell, How should this be accounted for in the financial statements? Therefore yes, you have an issued financial guarantee contract here because you as a parent agreed to reimburse lending bank just in case your subsidiary cannot pay. A disclosure statement is a document that discloses a detailed outline of the terms, conditions, rules, and standards of a transaction (e.g. of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the financial year. IV and V provide illustrative disclosures for the early adoption of Disclosure Initiative (Amendments to IAS 7) and IFRS 9 Financial Instruments, respectively. I wrote a few articles about expected credit loss on my website, there are nice explanations of ECL inside my IFRS Kit, so you might want to check that out. Well, since these are guarantees without involving any party within the group, then as an intragroup transaction the loans will be eliminated, the same as the guarantees themselves. So you should be looking at underlying receivables/loans of your customers to calculate ECL on them in order to value your own guarantee (liability). 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