11.6 Financial assets measured at amortized cost
Financial assets (debt financial assets) are measured at amortized cost, provided that both the following conditions are met:
- the financial asset is held in accordance with the “hold to collect” business model;
- the terms and conditions of an agreement concerning the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding (the SPPI test is passed).
Upon initial recognition, these assets are measured at fair value. The initial value of an asset measured at amortized cost is adjusted by all commissions and fees which affect its effective return and constitute an integral element of the effective interest rate of this asset (commissions and fees arising in connection with activities performed by the Group and leading to the arising of the assets).
The carrying amount of this category of assets is determined using the effective interest rate described in the Note “Interest income and expenses”, which is used to determine (calculate) the interest income generated by the asset in a given period, adjusting it for expected credit loss allowances.
Assets for which the schedule of future cash flows necessary for calculating the effective interest rate cannot be determined, are not measured at amortized cost. Such assets are measured at amounts due which also include interest on receivables, taking into consideration allowances for expected credit losses. Commissions and fees connected with the arising of or decisive for the financial qualities of such assets should be settled over the period of life of the asset using the straight-line method, and are included in commission income.