C8 Financial Instrument

Question 1

What’s the definition of Financial instrument

Answer 1

Any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity.

Question 2

What a Financial asset is?

Answer 2

1. Cash
2. An EI (equity instrument) of another
   entity
3. A contractual right ()
4. A contract that will or may be settled in the entity’s own EI
   P164

Question 3

What a Financial liability is?

Answer 3

A contractual obligation ( p164)

A contract will or may be settled in an entity’s own EI

Question 4

What is Equity Instrument?

Answer 4

Any contract that evidences a residual interest in the assets of an entity after deducting all of its liability.

Question 5

3 characteristics of Derivative?

Answer 5

1. Its value changes in response to an underlying variable;
2. No initial net investment or INI that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors;
3. It is settled at a future date.

Question 6

When the recognition happens?

Answer 6

When the entity becomes a party to the contractual provision of the instrument. (Sign the contract)