What is SPPI criterion?

However, when a lender assesses the classification of green loans, a question arises over whether such sustainability-linked adjustments to contractual cash flows are consistent with the SPPI criterion – i.e. whether the contractual terms of the financial asset give rise on specified dates to cash flows that are solely …

What if SPPI test fails?

If a non-equity financial asset fails the SPPI test, it must be classified at Fair Value Through Profit or Loss (FVTPL) in its entirety.

What does IFRS 9 apply to?

IFRS 9 is effective for annual periods beginning on or after 1 January 2018 with early application permitted. IFRS 9 specifies how an entity should classify and measure financial assets, financial liabilities, and some contracts to buy or sell non-financial items.

What does Sppi mean IFRS 9?

Solely Payments of Principal and Interest (SPPI) is in the context of IFRS 9 one of the two required conditions for classifying an instrument at Amortised Cost. It specifies that the contractual terms of the lending agreement gives rise on specified dates of Contractual Cashflows that are either.

Is prepayment a financial asset?

What Is a Prepaid Expense? A prepaid expense is a type of asset on the balance sheet that results from a business making advanced payments for goods or services to be received in the future. Prepaid expenses are initially recorded as assets, but their value is expensed over time onto the income statement.

Is cash a financial instrument?

Financial instruments are monetary contracts between parties. They can be cash (currency), evidence of an ownership interest in an entity or a contractual right to receive or deliver in the form of currency (forex); debt (bonds, loans); equity (shares); or derivatives (options, futures, forwards).

What is the purpose of the SPPI test?

The solely payments of principal and interest (SPPI) test requires that the contractual terms of the financial asset (as a whole) give rise to cash flows that are solely payments of principal and interest on the principal amounts outstanding ie cash flows that are consistent with a basic lending arrangement.

What are financial assets under IFRS 9?

Under IFRS 9, a financial asset is initially measured at fair value plus transaction costs, unless it is carried at fair value through profit or loss, in which case transaction costs are immediately expensed.

Is cash in bank a financial asset?

What Is a Financial Asset? A financial asset is a liquid asset that gets its value from a contractual right or ownership claim. Cash, stocks, bonds, mutual funds, and bank deposits are all are examples of financial assets.