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)
Derecognition of financial assets and liabilities
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is
derecognised when:
The rights to receive cash flows from the asset have expired;
The Group has transferred its rights to receive cash flows from the asset, or retained the right to receive cash
flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party
under a 'pass-through' arrangement; and
The Group either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither
transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the
asset.
Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained
substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the
extent of the Group's continuing involvement in the asset. Continuing involvement that takes the form of a guarantee
over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount
of consideration that the Group could be required to repay.
Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or
similar provision) on the transferred asset, the extent of the Group's continuing involvement is the amount of the
transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash-settled
option or similar provision) on an asset measured at fair value, the extent of the Group's continuing involvement is limited
to the lower of the fair value of the transferred asset and the option exercise price.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the
terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of
the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is
recognised in profit or loss.
(k)
Offsetting
Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position
only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle
on a net basis, or to realise the asset and settle the liability simultaneously. Such a right of set off (a) must not be
contingent on a future event and (b) must be legally enforceable in all of the following circumstances: (i) in the normal
course of business, (ii) the event of default and (iii) the event of insolvency or bankruptcy.
(1)
Repurchase and reverse repurchase agreements
Sale and repurchase agreements ("repo") are treated as secured financial transactions.
Securities sold under sale and repurchase agreements are retained in the consolidated statement of financial position
and, in case the transferee has the right by contract or custom to sell or repledge them, reclassified as securities pledged
under sale and repurchase agreements. The corresponding liability is presented within deposits and accounts of financial
and other institutions. The difference between the sale and repurchase price is treated as interest expense and accrued
over the life of the repo agreements.
Funds provided to purchase securities under agreements to resell ("reverse repo agreements") are recorded as
placements with banks and other financial institutions. The difference between the sale and repurchase price, adjusted
by interest and dividend income collected by the counterparty, is treated as interest income and accrued over the life of
repo agreements using the effective interest method.
(m) Securities lending and borrowing
Securities lent to counterparties are retained in the consolidated statement of financial position. Securities borrowed are
not recorded in the consolidated statement of financial position, unless these are sold to third parties, in which case the
purchase and sale are recorded within net gain on financial instruments at fair value through profit or loss in profit or loss.
The obligation to return them is recorded within financial liabilities at fair value through profit or loss.
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