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An entity holds investments to collect their contractual cash flows; infrequent sales occur when credit risk increases such that assets no longer meet the entity's credit policy, plus rare sales for unanticipated funding needs. Reports to KMP focus on credit quality and contractual return; FV is monitored from a liquidity perspective. Under Ind AS 109, the business model is:
AHold-to-collect contractual cash flows — sales due to credit-risk increases or unanticipated stress-case funding don't contradict the model
BOther (FVTPL) — because the entity also monitors fair value
CCannot be classified — the mix of holding and selling makes it indeterminate
DBoth hold-to-collect AND sell — because sales occur in the portfolio at all
Answer & Solution
Correct answer: A. Hold-to-collect contractual cash flows — sales due to credit-risk increases or unanticipated stress-case funding don't contradict the model
Para B4.1.2 — sales due to credit-risk concerns (consistent with the credit policy) or unanticipated stress-case funding are CONSISTENT with a hold-to-collect business model. Reporting to KMP centred on contractual return + credit quality confirms it. Monitoring FV from a liquidity-protection angle doesn't shift the model. The portfolio is amortised-cost (if SPPI met).
Related questions
Under Ind AS 109, a debt instrument with a HOLDER-PUT or ISSUER-PREPAY option meets the SPA financial institution holds assets to meet LIQUIDITY needs in a stress-case scenario. ThA loan pays an INVERSE FLOATING interest rate (the rate moves opposite to market interest An entity holds short-term investments to fund a future capital expenditure. Sales are INFUnder Ind AS 109, the FAIR VALUE OPTION (designating a financial asset at FVTPL at initialA perpetual instrument can be called by the issuer at any time at par + accrued interest. A bond is CONVERTIBLE into a fixed number of equity instruments of the issuer. Under Ind AA bond's principal and interest payments are LINKED TO AN UNLEVERAGED INFLATION INDEX in t