Financial Instruments Decision Tree Simulator

The accounting treatment of financial instruments remains one of the most conceptually challenging topics in financial reporting due to the complexity of classification, measurement, and professional judgment required under MFRS 9 Financial Instruments. Traditional lecture-based teaching often causes students to memorise rules without fully understanding the decision-making logic behind classification. This study introduces the Financial Instruments Decision Tree Simulator, an interactive teaching innovation designed to strengthen students’ conceptual understanding and analytical skills in applying MFRS 9. The simulator converts the classification framework into a structured decision tree that guides students through logical steps to determine the appropriate measurement category. It begins by identifying whether the instrument is a debt instrument or an equity instrument. For debt instruments, students proceed through the business model test and the Solely Payments of Principal and Interest (SPPI) test. For equity instruments, the simulator guides students in deciding whether the investment should be measured at FVTPL or through an irrevocable FVOCI election. The tool also visually demonstrates the effects of classification on profit or loss, other comprehensive income, and equity. By integrating interactive technology, immediate feedback, and practical scenarios, the simulator promotes active learning, critical thinking, and professional judgment in financial reporting education.