• The EIR is calculated at initial recognition of a financial asset or a financial liability. It is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to the gross carrying amount of the financial asset.
  • At initial recognition, the gross carrying amount of a financial asset, or the amortized cost of a financial liability, is generally equal to the fair value of the instrument, adjusted for transaction costs. The estimate of expected cash flows should consider all contractual terms (e.g. prepayment, call and similar options) but should not consider expected credit losses (i.e. the contractual cash flows are not reduced by expected credit losses.)Transaction Costs
  • Transaction costs include fees and commission paid to agents (including employees acting as selling agents), advisers, brokers and dealers, levies by regulatory agencies and security exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs.
  • Financial assets measured not at FVTPL: For financial assets not measured at fair value through profit or loss, transaction costs are added to the fair value at initial recognition. For financial liabilities, transaction costs are deducted from the fair value at initial recognition.
  • Financial assets at amortised cost: For financial instruments that are measured at amortised cost, transaction costs are subsequently included in the calculation of amortised cost using the effective interest method and, in effect, amortised through profit or loss over the life of the instrument.
  • Financial assets at FVOCI: For financial instruments that are measured at fair value through other comprehensive income transaction costs are recognised in other comprehensive income as part of a change in fair value at the next re-measurement. If the financial asset is measured those transaction costs are amortised to profit or loss using the effective interest method and, in effect, amortised through profit or loss over the life of the instrument.