The monetary amount at which a financial asset or financial liability is measured at the time it is first recognized (time of initial recognition) in the financial statements of an entity, minus any principal repayments, all adjusted to the cumulative amortization corresponding to the asset/ liability. This involves the application of the effective interest method to any difference between the initial amount and the amount recorded at maturity, net of the negative effect of impairment or uncollectibility (i.e., by accounting for the amount of reduction either directly or through an allowance account.)

The amortized cost calculation starts with original cost and then adjusts it over time to take into account any future developments in terms of credit losses and/ or losses in the stream of economic resources being transferred on account of that asset or liability.

In short, the amortized cost consists of the following main components:

• amount at initial recognition.
• subsequent recognition of interest income /expense (calculated using the effective interest method).
• principal repayments.
• credit losses (caused by impairment or uncollectibility).