F2B - Chapter 3: Financial Instruments Flashcards
What is a financial assets?
Any asset that is:
Cash
an equity instrument of another entity
contractual right to receive cash or another financial asset from another entity
contractual right to exchange financial instruments with another entity under conditions that are potentially favourable
What is a financial liability?
Any liability that is a contractual obligation:
To deliver cash or another financial asset to another entity
To exchange financial instruments with another entity under conditions that are potentially unfavourable
What is an entity instrument?
Any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities
What are the three accounting starts that deal with financial instruments?
IAS 32 Financial instruments: presentation
IFRS 7 Financial instruments: disclosures
IFR9 Financial instruments
What does IAS 32 provide?
The rules on classifying financial instruments as liabilities or equity
When would a instrument be classified as a liability?
If the issuer has a contractual obligation:
To deliver cash (or another financial asset) to the holder
To exchange financial instruments on potentially unfavourable terms
When would a financial instrument be classed as an equity instrument?
If there is no such contractual obligation
According to IAS 32 when can a financial liability and asset be offset?
The net amount may only be reported when the entity:
Has a legally enforceable right to set off the amounts and
intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously
According to IFRS 9 what would a financial instrument be initially recognised as?
Its fair value
What are the three classifications of debt financial assets?
Amortised Cost
Fair value through other comprehensive income
Fair value through profit or loss
When would an investment in a debt financial asset be classified and measured at amortised cost?
The entity’s business model is to hold and collect all of the asset’s contractual cash flows.
The terms of the financial asset create the receipt of cash flows that are solely repayments of interest and principal amount outstanding.
When would a investment be classified and measured at fair value through other comprehensive income?
The entity’s business model is to hold some of the assets until maturity and to sell some of the financial assets
The terms of the financial asset create the receipt of cash flows that are solely repayments of interest and principal amounts outstanding
What does the amortised cost of an asset equal?
Initial cost plus interest less cash received.
Interest will be charged at the effective rate.
What are derivatives?
Financial instrument that derives its value from the value of an underlying asset, price, rate or index
What are the characteristics of a derivative?
Its value changes in response to changes in the underlying item
It requires little or no initial investment
It is settled at a future date
