Annual Report 2019
Central Bank of the Republic of Armenia
Notes to the 2019 consolidated financial statements
2.
Summary of significant accounting policies (continued)
(j)
Financial instruments - key measurement terms (continued)
The most significant elements of interest within a lending arrangement are typically the consideration for the time value
of money and credit risk. To make the SPPI assessment, the Group applies judgement and considers relevant factors
such as the currency in which the financial asset is denominated, and the period for which the interest rate is set.
In contrast, contractual terms that introduce a more than de minimis exposure to risks or volatility in the contractual cash
flows that are unrelated to a basic lending arrangement do not give rise to contractual cash flows that are solely payments
of principal and interest on the amount outstanding. In such cases, the financial asset is required to be measured at
FVPL.
Debt instruments at FVOCI
The Group measures debt instruments at FVOCI when both of the following conditions are met:
The instrument is held within a business model, the objective of which is achieved by both collecting contractual
cash flows and selling financial assets;
The contractual terms of the financial asset meet the SPPI test.
FVOCI debt instruments are subsequently measured at fair value with gains and losses arising due to changes in fair
value recognised in OCI. Interest revenue and foreign exchange gains and losses are recognised in profit or loss in
the same manner as for financial assets measured at amortised cost. On derecognition, cumulative gains or losses
previously recognised in OCI are reclassified from OCI to profit or loss.
The ECLs for debt instruments measured at FVOCI do not reduce the carrying amount of these financial assets in the
statement of financial position, which remains at fair value. Instead, an amount equal to the allowance that would arise if
the assets were measured at amortised cost is recognised in OCI as an accumulated impairment amount, with a
corresponding charge to profit or loss. The accumulated loss recognised in OCI is recycled to the profit and loss upon
derecognition of the asset.
Equity instruments at FVOCI
Upon initial recognition, the Group occasionally elects to classify irrevocably some of its equity investments as equity
instruments at FVOCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are
not held for trading. Such classification is determined on an instrument-by-instrument basis.
Gains and losses on these equity instruments are never recycled to profit or loss. Dividends are recognised in profit or
loss as other income when the right of the payment has been established, except when the Group benefits from such
proceeds as a recovery of part of the cost of the instrument, in which case, such gains are recorded in OCI. Equity
instruments at FVOCI are not subject to an impairment assessment. Upon disposal of these instruments, the accumulated
revaluation reserve is transferred to retained earnings.
Reclassification of financial assets
The Group does not reclassify its financial assets subsequent to their initial recognition, apart from the exceptional
circumstances in which the Group changes the business model for managing financial assets. Financial liabilities are
never reclassified.
Borrowings
Issued financial instruments or their components are classified as liabilities, where the substance of the contractual
arrangement results in the Group having an obligation either to deliver cash or another financial asset to the holder, or
to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number
of own equity instruments. Such instruments include deposits and accounts of financial and other institutions, amounts
due to the Government and the IMF, other borrowed funds and debt securities issued.
After initial recognition, borrowings are subsequently measured at amortised cost using the effective interest method.
Gains and losses are recognised in profit or loss when the borrowings are derecognised as well as through the
amortisation process.
Accounting for zero interest rate loans
The benefit of the funds which are obtained by the Group from the international financial institutions at zero rate of interest
is treated and accounted for as a government grant. The benefit of zero rate of interest is measured as the difference
between the fair value of the funds obtained and the proceeds received and recognised as deferred income as at the
date of the funds initial recognition. The amount of deferred income is recognised in the profit or loss over the period in
which the Group recognises as expenses the related costs. Grant related income is deducted in reporting the related
expense.
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