What Are The Three Categories Of Financial Assets

The three categories of financial assets and the accounting are:

1. Debt instruments – measured at amortised cost if they meet the “business model” and “characteristics of the asset” tests. Essentially this means that the instrument must be held for the purpose of collecting the contractual cash flows (principal and interest). If they don’t meet these tests they must be measured at fair value through profit or loss (FVTPL).
2. Derivatives – FVTPL
3. Equity instruments – at FVTPL if held-for-trading. Otherwise the entity may elect to measure them at FVTPL or at fair value through equity. In the latter case all fair value movements must go to equity and no recycling to profit or loss is permitted.

   Categories of financial assets and the accounting are important to an accountant.