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A financial institution holds assets to meet LIQUIDITY needs in a stress-case scenario. The entity monitors credit quality and evaluates performance on interest revenue + credit losses. Recurring sales occur but are INSIGNIFICANT in value; in past stress events, significant sales occurred for liquidity. Under Ind AS 109, the business model is:
AFVTPL — stress-case liquidity assets are by definition trading assets
BBoth hold-to-collect AND sell — past stress sales prove a dual model
COther (FVTPL) — credit-loss monitoring is inconsistent with hold-to-collect
DHold-to-collect — the entity's objective is to collect contractual cash flows; stress-event sales and insignificant recurring sales don't contradict that objective
Answer & Solution
Correct answer: D. Hold-to-collect — the entity's objective is to collect contractual cash flows; stress-event sales and insignificant recurring sales don't contradict that objective
Para B4.1.4 — sales for stress-event liquidity (rare) and insignificant routine sales do NOT contradict hold-to-collect. The KMP report focuses on contractual return and credit losses — confirming the model. Even past significant stress-event sales don't shift the model. (Exception: if a regulator REQUIRES routine significant sales to demonstrate liquidity, the model would NOT be hold-to-collect — third-party requirements matter.)
Related questions
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