Classification of financial liabilities

There are two measurement categories in which financial liabilities are classified:

Other than derivatives and liabilities that are held for trading, the default classification category for financial liabilities is amortized cost. Initially, financial liabilities are recorded at their fair values, however, treatment of transaction costs differs in both classifications.

  • For amortized cost liabilities, transaction costs are subtracted from the fair value at initial recognition.
  • For FVTPL liabilities, transaction costs are charged directly to the statement of profit or loss and the liability is initially recorded at its fair value.

Subsequently, amortized cost liabilities are measured using effective interest rate method. Whereas FVTPL liabilities are revalued to their new fair values at each reporting date, with the changes in fair values taken to the statement profit or loss.

Here are some common examples of amortized cost liabilities and FVTPL liabilities.


Amortized cost liabilitiesFVTPL liabilities
Trade payablesForward contracts
Loans payableCommodity future contracts
Bonds payableInterest rate swaps
Borrowings from bankShare option contracts