Chapter 11 - Financial instruments

Question 1

What are compound financial instruments?

Answer 1

Instruments that contain both a liability component and an equity component. E.g. Loan stock

Question 2

When should a financial asset or financial liability b recognised?

Answer 2

When the entity becomes party to the contractual provisions of the instrument

Question 3

How is the value of a compound financial instrument calculated?

Answer 3

Evaluate the liability component first and then deduct this from the fair value of the instrument to give the equity component