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Prepayment Features with Negative Compensation (Amendments to NZ IFRS 9)

Prepayment Features with Negative Compensation (Amendments to NZ IFRS 9) is based on Prepayment Features with Negative Compensation (Amendments to IFRS 9)as issued by the International Accounting Standards Board (IASB)

The standard amends NZ IFRS 9 Financial Instruments.

As a result of the amendments, particular financial assets with prepayment features that may result in negative compensation for the early termination of the contract are eligible to be measured at amortised cost or at fair value through other comprehensive income.  This is referred to as ‘negative compensation’.

Negative compensation arises when a contractual prepayment feature could force a lender to accept a prepayment amount that is substantially less than unpaid amounts of principal and interest, which would, in effect, include an amount that reflects a payment to the borrower by the lender (instead of compensation from the borrower to the lender) even though the borrower chose to terminate the contract early.

The standard is effective for annual periods beginning on or after 1 January 2019, with early application permitted.

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