Which of the following classifications applies to financial assets held to collect cash flows consisting of principal and interest?

The correct classification for financial assets that are held to collect cash flows consisting solely of principal and interest is Amortized Cost. This classification is guided by the International Financial Reporting Standards (IFRS) and the Generally Accepted Accounting Principles (GAAP), which define how an entity should measure and report its financial assets.

When an entity holds financial assets with the objective of collecting contractual cash flows that are solely payments of principal and interest, these assets are typically measured at amortized cost. This approach reflects the initial recognition of the asset at its fair value, adjusted for principal repayments and impairment losses, and increased over time by an effective interest rate method.

This treatment aligns with the entity’s business model, which focuses on collecting cash flows rather than actively trading or managing the assets for fair value changes, distinguishing it from other classifications like Fair Value Through Profit or Loss (FVTPL) or Fair Value Through Other Comprehensive Income (FVTOCI).