Financial Instruments Flashcards
What is a financial instrument?
Any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity
What does it mean to offset?
It means to present rights and obligations as a net amount in the SFP
When is offsetting allowed?
It is only allowed when the entity has a legally enforceable right to set off the recognised
amounts, AND intends either to settle on a net basis OR to realize the asset and settle the
liability simultaneously.
What is a financial asset?
any asset that is:
1) Cash
2) Any equity instrument of another entity
OR
3) Any contractual right:
– To receive cash/another financial asset from
another entity
– To exchange financial instruments with another
entity under potentially favorable conditions
What is a financial liability?
A contractual obligation
– To deliver cash or another financial asset to
another entity;
OR
– To exchange financial instruments with
another entity under conditions that are
potentially unfavourable
What is an equity instrument?
Any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
What are treasury shares?
Treasury shares are shares repurchased (bought back) by a company which, instead of being cancelled on their re-acquisition, are held
by the company until reissue or resale
Do treasury shares reduce the number of shares
outstanding on the open market?
Treasury shares reduce the number of shares
outstanding on the open market
IFRS 9 classifies financial assets based on two
characteristics
which are these?
1) Business model test
* What is the objective of holding financial
assets? Collecting the contractual cash flows?
Selling?
2) Contractual cash flows’ characteristics test
* Are the cash flows from the financial assets on
the specified dates solely payments of
principal and interest on the principal outstanding? Or, is there something else?
