What Is a Financial Asset?

Financial assets (Financial Assets) are the symmetry of physical assets and refer to assets that are owned by units or individuals in the form of value. It is an intangible right to claim physical assets. It is a general term for all financial instruments that can be traded in organized financial markets, with realistic prices and future valuations. The biggest feature of financial assets is the ability to provide their owners with spot or forward currency income flows in market transactions.

monetary assets

Financial assets are all documents that represent future income or legal claims on assets, also known as

Financial assets usually refer to the company's inventory cash, bank deposits, other monetary funds (such as: corporate foreign exchange deposits, bank draft deposits, bank draft deposits, credit card deposits, letter of credit deposits, investment funds, etc.) , Bills receivable, loans, other receivables, equity investment, debt investment and assets formed from derivative financial instruments. ^[2]

I. Recognition of impairment losses on financial assets

The enterprise shall check the book value of financial assets (including single financial assets or a group of financial assets, the same below) other than financial assets measured at fair value and whose changes are included in the current profit and loss on the balance sheet date. There is objective evidence that If the financial asset is impaired, an impairment loss shall be recognized and provision for impairment shall be made.

Objective evidence that financial assets are impaired refers to matters that actually occurred after the initial recognition of the financial assets and have an impact on the expected future cash flows of the financial assets, and the enterprise can reliably measure the impact

Objective evidence of financial asset impairment:

Includes the following:

The issuer or debtor has serious financial difficulties;

The debtor violates the terms of the contract, such as interest payment or principal default or overdue;

Creditors make concessions to debtors who have financial difficulties due to economic or legal considerations;

(I) The debtor is likely to fail or undergo other financial restructuring;

The financial asset cannot continue to trade in the active market due to significant financial difficulties of the issuer;

It is impossible to identify whether the cash flow of an asset in a group of financial assets has decreased, but after an overall evaluation of it based on public data, it is found that the estimated future cash flow of the group of financial assets since the initial recognition has indeed decreased and is available. Measurements, such as the gradual deterioration of the debtor's ability to pay for this group of financial assets, or an increase in the unemployment rate in the country or region where the debtor is located, a significant decline in the price of collateral in its area, and a downturn in the industry;

Major adverse changes in the technical, market, economic, or legal environment in which the debtor operates make it impossible for equity instrument investors to recover their investment costs;

(2) The fair value of equity instrument investments has fallen sharply or non-temporarily;

Other objective evidence that financial assets are impaired.

Measurement of financial asset impairment losses

A) Measurement of impairment losses on held-to-maturity investments, loans and receivables

Held-to-maturity investments, loans and receivables are subsequently measured at amortized cost. When impairment occurs, the difference between the financial asset's book value and the present value of the expected future cash flows should be recognized as impairment. The loss is included in the current profit and loss.

The present value of the estimated future cash flows of a financial asset measured at amortized cost should be determined by discounting the original actual interest rate of the financial asset, taking into account the value of the relevant collateral (the costs incurred in obtaining and selling the collateral should be deducted) .

The original effective interest rate is the actual interest rate calculated and determined when the financial asset was initially recognized. For floating-rate loans, receivables, or held-to-maturity investments, the current effective interest rate stipulated in the contract can be used as the discount rate when calculating the present value of future cash flows. Even if the contract terms are renegotiated or modified due to financial difficulties due to the debtor or the issuer of the financial assets, the original effective interest rate of the financial asset calculated before the amendment of the terms is still used when the impairment loss is recognized.

If the difference between the estimated future cash flow of short-term receivables and its present value is small, the estimated future cash flow may not be discounted when determining the relevant impairment loss.

2. Measurement of impairment losses of available-for-sale financial assets

When the available-for-sale financial asset is impaired, even if the financial asset is not derecognised, the cumulative loss caused by the decline in fair value that was originally directly included in the owner's equity should be transferred out and included in the current profit and loss. The accumulated loss transferred out is equal to the balance of the initial acquisition cost of available-for-sale financial assets after deducting the recovered principal and amortized amount, the current fair value, and the impairment loss originally included in profit or loss.

For equity instrument investments that do not have a quote in an active market and whose fair value cannot be reliably measured, when the impairment occurs, the book value of the equity instrument investment or derivative financial assets should be compared with the future cash flows based on the current market rate of return of similar financial assets. The difference between the present value determined by discounting is recognized as an impairment loss and included in the current profit and loss. If the derivative financial assets that are linked to the equity instrument and must be settled by the delivery of the equity instrument are impaired, an impairment loss should also be recognized using a similar method.

For available-for-sale debt instruments with recognized impairment losses, where the fair value has risen in subsequent accounting periods and is objectively related to events that occurred after the recognition of the original impairment loss, the previously recognized impairment loss should be reversed , Included in the current profit and loss.

Impairment losses on available-for-sale equity instrument investments cannot be reversed through profit or loss. In addition, an impairment loss on an equity instrument investment that does not have a quoted price in an active market and whose fair value cannot be reliably measured, or a derivative financial asset that is linked to the equity instrument and must be settled by delivery of the equity instrument, cannot be reversed. ^{[7] [8]}

Transfer

The transfer of financial assets refers to the transfer or delivery of financial assets by an enterprise (transferr) to another party (transferr) other than the issuer of the financial asset.

Recognition and measurement of financial asset transfers

(I) Distinction between overall transfer and partial transfer of financial assets

An enterprise shall distinguish the transfer of financial assets into overall transfers and partial transfers of financial assets, and shall handle them in accordance with the relevant provisions of accounting standards.

(2) Circumstances of meeting the conditions for termination of confirmation

Judgment of meeting the termination confirmation conditions

The enterprise has transferred almost all risks and rewards in ownership of financial assets to the transferee, and should stop recognizing related financial assets.

The following situations indicate that the company has transferred almost all risks and rewards of ownership of financial assets to the transferee:

The company sells financial assets without recourse;

The sale of financial assets with a repurchase agreement, the repurchase price is the fair value of the financial assets at the time of the repurchase;

(3) The sale of financial assets with significant out-of-the-money put options (or significant out-of-the-money call options). The company sells financial assets and signs a put (or call) option contract with the buyer, but judging from the terms of the contract, the option is a significant out-of-the-money option, which makes it extremely likely that the option will be exercised at or before expiration. At this time, it can be determined that the enterprise has transferred almost all the risks and rewards in the ownership of the financial asset, so it should terminate the recognition of the financial asset.

Measurement when the conditions for derecognition are met

Gain or loss on the overall transfer of financial assets = consideration received for the transfer + accumulated gains from changes in fair value that were directly credited to owner's equity (if accumulated losses should be deducted)-book value of the transferred financial assets

If the partial transfer of financial assets meets the conditions for derecognition, the entire book value of the transferred financial assets should be included in the derecognition and non-derecognition sections (in this case, some of the retained assets should be treated as underecognized financial assets Part), apportioned by their respective relative fair values.

(3) Continued involvement (only general knowledge is required)

Judgement of continued involvement

Where an enterprise neither transfers nor retains almost all the risks and rewards of ownership of financial assets, it shall deal with the following situations separately:

If the control of the financial asset is waived, the confirmation of the financial asset shall be terminated;

If the financial assets have not been waived, the relevant financial assets shall be confirmed according to the extent to which they continue to be involved in the transferred financial assets, and the relevant financial liabilities shall be confirmed accordingly.

Measure of continued involvement

If an enterprise continues to be involved by providing financial guarantees for the transferred financial assets, it shall confirm the assets that continue to be involved on the date of transfer based on the lower of the book value of the financial assets and the amount of financial guarantees. The sum of the amount of the guarantee and the fair value of the financial guarantee contract (the fee charged for providing the guarantee) is recognized as a liability for continued involvement.