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CIMA - F2 > Chapter 23 - Financial Instruments 1 > Flashcards

Chapter 23 - Financial Instruments 1 Flashcards

1
Q

Financial Instrument

A

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

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2
Q

Examples of Financial Instruments

A

Options, Forwards or Warrants

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3
Q

Accounting Standards

A

IAS 32&raquo_space; presentations
IAS 39&raquo_space; Recognition & Measurements
IFRS 7&raquo_space; Disclosures

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4
Q

IAS 32 - Presentation

A 
Financial Asset
^
^
Contract 
^
^
Financial Liability or Equity instrument
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5
Q

Financial Asset (1)

A

Contractual Right to receive cash or another financial asset from another entity

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6
Q

Financial Asset (2)

A

A contractual right to exchange financial assets or financial liabilities under potentially favorable conditions

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7
Q

Financial Asset (3)

A

The right to an equity instrument of another entity

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8
Q

Financial asset example

A

> Cash
Derivatives (e.g share option)
Shares (as an investment)

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9
Q

Financial Liability (1)

A

An obligation to deliver cash or another financial asset to another entity

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10
Q

Financial Liability (2)

A

An obligation to exchange financial instruments with another entity under potentially unfavorable conditions

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11
Q

Financial Liability examples

A

> Trade Payables
Bank Loans
Debenture Loans (Payables)
Asset backed securities

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12
Q

Equity Instruments (1)

A

A contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities

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13
Q

Equity Instruments examples

A

> Ordinary shares
Warrants (a right to shares in future normally attached to debt)
Preference shares (irredeemable)

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14
Q

Classifications under IAS 32

A

> Substance - rather than legal form (debt is debt)
Mandatory Redemption - instrument will be a financial liability
Contractual Responsibility to deliver cash - instrument will be financial liability
No Contractual Responsibility - instrument is equity

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15
Q

IAS 39 vs IAS 32

A

IAS 32 = How to classify financial instruments

IAS 39 = When to recognize financial instruments

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16
Q

IAS 39 - Initial Recognition

A

Recognized in the statement of financial position when the entity becomes party to the contractual provisions

17
Q

When are financial instruments shown in the financial statements

A

As soon as the conditions of the contract are met by that entity

18
Q

Categories of Financial Assets

A

> Held to Maturity
Loans & Receivables
Fair Value through P&L
Available for Sale

19
Q

Category 1 - Held to Maturity

A

> Debt securities held to Maturity

> Fixed payments and Fixed Maturity

20
Q

Category 2 - Loans & Receivables

A

> Not quoted on an active market
Non derivative asset

> Fixed, determinable payments

21
Q

Category 3 - Fair value through P&L

A

> Debt and Equity securities held for trading (Short term)

> A derivative product (grouped product for risk management)

22
Q

Category 4 - Available for Sale

A

> Catch-all category (all other financial assets)

23
Q

Initial Measurements

A

Fair Value

Transaction Costs - included in the total cost of the instrument

24
Q

Transaction Costs of Assets and Liabilities classified as Fair value through P&L

A

They are expensed via P&L

25
Q

Financial Asset - Recording

A

Dr Loans and Receivable

Cr Bank

26
Q

Financial Liability - Recording

A

Dr Bank

Cr Financial Liability

27
Q

Financial Asset held at fair value through P&L

100,000 shares at 120c in 20x8

100,000 shares at 114c at year end

Subsequent measurements

A

Initial Measurement

Dr Financial Asset $120,000
Cr Bank $120,000

Subsequent Measurements

Dr Loss on Financial Asset $6,000
Cr Financial Asset $6,000

28
Q

Available for sale asset

Initial recording

A

Initial recording includes transaction costs

Dr Financial Asset
Cr Bank

29
Q

Available for sale asset

Subsequent measurement
After making a loss

A

Dr Other Reserves

Cr Financial Asset

30
Q

Held to maturity assets and Loans & Receivables

Measurements

A

Measured at Amortized Cost

31
Q

Financial Asset - Held to Maturity

Subsequent Measurement

A

Amortized cost using the effective interest method

32
Q

Financial Asset - Loans & Receivables

Subsequent Measurement

A

Amortized Cost using the effective interest method

33
Q

Financial Asset - Fair value through P&L

Subsequent Measurement

A

Fair Value

34
Q

Financial Asset - Available for Sale

Subsequent Measurement

A

Fair Value

35
Q

Financial Liability- Most Financial Liabilities

Subsequent Measurement

A

Amortized Cost using the effective interest method

36
Q

Financial Liability- Fair value through P&L

Subsequent Measurement

A

Fair Value

CIMA - F2 (23 decks)

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