10 Financial assets and financial liabilities Flashcards
What is the financial instrument definition?
A financial instrument is a contract gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity
What are some examples of financial asset is?
- Cash
- An equity instrument of another entity
- A contractual right to receive cash or another final asset
- A contractual right to exchange financial assets or liabilities on favourable terms
What are some examples of financial liability is?
- A contractual obligation to reliever cash or another financial asset
- A contractual obligation to exchange financial assets or liabilities on unfavourable terms
How should financial liabilities be recorded?
Amortised costs
Fair value through profit or loss
What is the accounting treatment for amortised financial liabilities?
They are initially recognised at fair value (normally the proceeds received) less costs
Then they are subsequently measured at amortised costs:
Interest charged to P/L using effective date
Cash payments are deducted
What is a compound instrument?
One that has characteristics of both a financial liability and equity
What does IAS32 specify that compound instruments must be split into?
A liability component
A equity component
What is the liability component made up of?
Present value of cash repayments, discounted using the market rate for non convertible bonds
How is the equity component made up?
Difference between cash received and the liability component at the issue date
How can investments in shares be treated?
FVPL or FVOCI
How is investment in shares through the profit and loss recognised?
Fair value (costs to SPL)
Revalue at each reporting date with gain or loss in SPL
How is investment in shares through the other comprehensive income recognised?
Fair value plus costs
Revalue at each reporting date with gain or loss in OCI
How is investment in shares through the profit and loss hold for?
Held for trading purposes
How is investment in shares through the other comprehensive income hold for?
Not held for short term trading and designation is made
What are the three ways under IFRS 9 you can classifying debt investments?
1 amortised cost
2 fair value through OCI
3 fair value through P/L
With investments in debt, is the asset is measured at amortised cost, what are the conditions?
1 hold the asset to maturity to collect contractual cash flows
2 contract terms that are solely repayment of principles and interest of the principle amount outstanding
With investments in debt, is the asset is measured at fair value through OCI, what are the conditions?
1 both collect contractual cash flows but to increase returns by SELLING the asset
2 contract terms that are solely repayment of principles and interest of the principle amount outstanding
When can a financial liability be derecognised?
When the obligation is extinguished
When can financial liability be extinguished?
Is discharged, cancelled or expires
Where is the different between consideration transferred and the carrying amount recognised?
Profit and loss
When should an asset be deregonised?
When the contractual rights to the cash flows expire
Transfers substantially all the risks and rewards to another party
What is factoring with recourse?
Refundable
Sell receivables to debt factoring (risks and rewards not transferred
What is factoring without recourse?
Non refundable (or to a maximum)
How is factoring with recourse treated?
Receivables not derecognised, treat proceeds as a loan
How is factoring without recourse treated?
Receivables derecognised treat proceeds as a reduction in receivables
What does IAS 32 deal with?
Financial instruments: presentation
Deals with the classification of financial instruments and their presentations in the statements
What does IFRS 7 deal with?
Financial instruments: disclosures
How financial statements are measured and when they should be recognised
What does IFRS 9 deal with?
Financial instruments
Deals with the disclosure of financial instruments in financial statements
How is amortised cost calculated?
Initial value + effective interest - interest paid
How are irredeemable preference shares classified?
Equity
