PAS 32 Flashcards
PAS 32
The principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and financial liabilities.
Applies to all types of financial instruments except the following for which other Standards apply:
Investments in subsidiaries, associates and joint ventures
Employer’s rights and obligations under employee benefit plans and share-based payments
Insurance contracts
Financial Instruments
Any contract that gives to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial asset- is any asset that is:
Cash
An equity instrument of another entity;
A contractual right to receive cash or another financial asset from another entity;
A contractual right to exchange financial instruments with another entity under conditions that are potentially favorable; or
A contract that will or may be settled in the entity’s own equity instruments and is not classified as the entity’s own equity instrument.
Financial liability- is any liability that is:
A contractual obligation to deliver cash or another financial asset to another entity;
A contractual obligation to exchange financial assets or financial liabilities with another entity under conditions that. are potentially unfavorable to the entity; or
A contract that will or may be settled in the entity’s own equity instruments and is not classified as the entity’s own equity instrument.
Financial Liability
The entity has a contractual
obligation to pay cash or another financial asset or to exchange financial instruments under potentially unfavorable condition.
Equity instrument
The entity has no obligation to pay cash or another financial asset or to exchange financial instruments under potentially unfavorable condition.
Redeemable preference shares
are preferred stocks which the holder has the right to redeem at a set date.
are classified as financial liability because when the holder exercises its right to redeem, the issuer is mandatorily obligated to pay for the redemption price.
Callable preference shares
are preferred stocks which the issuer has the right to call at a set date.
are classified as equity instrument because the right. to call is at the discretion of the issuer and therefore has no obligation to pay unless it chooses to call on the shares.
Member’s shares in cooperative entities and similar instruments are equity if:
The entity has an unconditional right to refuse redemption of the members’ shares, or
Redemption is unconditionally prohibited by law or relevant regulation.
Puttable instrument
Gives the holder the right to return (put back) the instrument to the issuer in exchange for cash or another financial asset or is automatically put back to the issuer upon the occurrence of a specified future event
Compound financial instruments
A financial instrument that from the issuer’s perspective, contains both a liability and an equity component. These components are classified and accounted for separately.
To separate the debt and equity components of a compound instrument
the entity simply deducts from the fair value of that whole instrument the fair value of the debt component without the equity feature: the remaining amount represents the equity component.
Treasury Shares
An entity’s own shares that were previously issued but were subsequently reacquired but not retired.
Presented separately either in the statement of financial position or in the notes as deduction from equity.
Transaction costs
issuing financial liabilities are included in the carrying amount of the financial liability and subsequently amortized to profit or loss.
Costs of an abandoned equity transaction are recognized as _________.
expense
A financial asset and a financial liability are offset and only the net amount is presented in the statement of financial position when the entity has both:
a legal right of setoff and
an intention to settle the amounts on a net basis or simultaneously
