What is primarily measured at amortised cost?

Amortised cost is an accounting method used to measure the value of certain financial assets and liabilities. Under this method, the carrying amount of these financial instruments is adjusted over time for the principal amount along with any interest and fees that may be part of the transaction.

The primary feature of amortised cost is that it reflects the present value of the estimated future cash flows, discounted using the effective interest rate. This is crucial for financial reporting as it provides a more accurate representation of the value of assets and liabilities over time, particularly for loans and receivables. When financial assets and liabilities are recognized, they are evaluated based on their expected cash flows, which allows for a nuanced understanding of financial performance and position.

In contrast, financial liabilities only concern half of the conversation and do not encompass the full spectrum of financial instruments evaluated at amortised cost. Liabilities before interest payments is not a comprehensive view of the financial landscape and overlooks critical components like interest accruals. Cash flows from operational activities are related to the operational aspects of a business and do not pertain specifically to the valuation of assets and liabilities at amortised cost.

By recognizing financial assets and liabilities upon their inception at amortised cost, stakeholders can gain insights into the financial health of