Learning unit 7 - Financial instruments (liabilities)

Question 1

Define what is a financial liability.

IA 32.11

Answer 1

A financial liability is defined as any liability that is:

a) contractual obligation to another entity involving either the:
- delivery of cash or other financial assets; or
- exchange of Financial assets / FL under unfavorable conditions

b) a contract to be settled in the entity’s own equity instruments that is either a:
- non derivative involving involving a variable of shares; or
- derivative involving a fixed of shares

Question 2

What are the possible classification of Financial liabilities.

IFRS 9.4.2.1

Answer 2

Financial liabilities are classified as follows:
- at fair value through profit or loss; or
- at amortized cost

FL may never be reclassified.

Question 3

When are financial liabilities classified at fair value through profit or loss (FVPL)?

Answer 3

If the FL is held for trading

Question 4

When are financial liabilities classified at amortized cost?

Answer 4

If the FL is NOT held for trading and is not designated at FVPL