Financial Instruments Flashcards
IAS 32
What is the difference between a debt financial instrument and equity financial instrument?
What is an equity instrument?
What is there no obligation for?
Equity instrument has no contractual obligation to be paid
Any contract that evidences residual interest in assets of an entity after deducting all liabilities
No obligation to deliver cash
Financial Liability
What is done here?
What is the difference between a redeemable and irredeemable preference dividend?
Cash is paid to discharge the obligation
Irredeemable a fixed dividend is paid
Redeemable is paid in cash in x years time
Compound Instrument
What does a convertible instrument have?
What is the approach to working this out?
What is the proforma? What do we include in each line?
What do we do with the results of that?
An equity and liability component
Work out the liability portion and then equity is the balancing figure
Yr CF x DF
CF= amount of shares x % x £
DF= year and conversion option % using PV table
(Issued amount x par value) - answer to above = Equity
IFRS 9 - Raising Finance
When is a financial liability recognised?
How are financial instruments measured initially?
How do you work this out? What’s it also known as?
What are two ways to go measure financial liabilities?
How do you differentiate which is which?
When entity enters into contractual provisions
Fair value
Transaction price - transaction costs
Net proceeds
FVTPL or amortised cost
FVTPL held for trading
What is the initial double entry at amortised cost?
What is the proforma for the subsequent measurement?
Dr Bank and Cr Liability nominal value
Dr Liability and Cr Bank issue costs
Then combine the lines
Yr B/d + interest - cash = C/d
B/d = first year is initial amount following years are the c/d
Interest = interest % x b/d
Cash = coupon rate x NV
How do we calculate interest payable in arrears?
Work out the interest and cash
Take cash away from interest
Combine to one line taking away finance costs
Derivatives
How are they measured?
What are the 3 aspects?
Double entry for initial recognition?
Subsequent recognition?
Final recognition?
FVTPL
Im the future
Underlying Variable
Nothing or little initially
Dr Asset/Investment/Derivative
Cr Bank
Cr or Dr - Asset/Investment or P/L difference from above
Dr Bank what sold for
Cr Asset Derivative what worth now
Cr or Dr the difference
Financial Assets
How is this different to raising finance?
How can this be done?(3)
When do we recognise?
How are the initially measured?
Provides finance
Loans to sub
Finance markets
Purchasing shares
When receive contractual provisions
Initially measured at fair value
What are the subsequent measurement methods?
What does measurement depend on?
What do we measure at FVTPL?
Why do we measure at amortised cost? So what can not be done by this?
When do we measure through FVTOCI?
FVTPL
Amortised Cost
FVTOCI
Whether debt or equity
Held for trading
Hold to earn fixed cash, ordinary shares because don’t have a fixed dividend
Make irreceivable investment
Derecognition of Financial Assets
When do we de recognise?(2)
What do we send to P/L?
Contractual cash flows expire
Transfer all risk and reward
Selling price - carrying value
Investment in shares is measured FVTOCI so add transaction costs
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