Page 11 - Finac1 Test 2 slides - 3. Financial Instruments

FINANCIAL INSTRUMENTS

Definitions relating to recognition and

measurement

• The amortised cost of a financial asset or financial liability

is the amount at which the financial asset or financial

liability is measured at initial recognition minus principal

repayments, plus or minus the cumulative amortisation

using the effective interest method of any difference

between the initial amount and the maturity amount, and

for financial assets, adjusted for any loss allowance.

• The effective interest method is a method of calculating the

amortised cost of a financial asset or a financial liability and

of allocating the interest income or interest expense over

the relevant period.

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