pas32 Flashcards
PAS 32
Provides guidance in representing financial instruments as liability or equity, in offsetting financial assets and financial liabilities, and in classifying financial instruments, from the perspective of the issuer, into financial assets, financial liabilities, and equity instruments.
PAS 32
Compliments PFRS9 Financial Instruments
PAS 32 applies to all types of financial instrument, except the following for which Standards apply;
a. investments in subsidiaries, associates and joint ventures
b. employer’s rights and obligations under employee benefit plans and share-based payments
c. insurance contracts
any contract that give rise to a financial asset of one entity and a financial liability or equity of another entity
Financial Instruments
a. cash
b. an equity instrument of another entity
c. a contractual right to receive cash or another financial asset from another entity
d. a contractual right to exchange financial instrument with another entity under conditions that are potentially favorable
e. a contract that will or may be settled in entity’s own equity and is not classified as the entity’s equity instrument
FINANCIAL ASSET
a. a contractual obligation to deliver cash or another financial asset or entity
b. a contractual obligation to exchange financial assets or financial liabilities with another entity under condition that are potentially unfavorable to the entity
c. a contract that will or may be settled in the entity’s own instrument and is not classifies as the entity’s own equity instruments
FINANCIAL LIABILITIES
any contract that evidences a residual interest in assets of an entity after deducting all of its liabilities
Equity instruments
a. cash and cash equivalents
b. receivables
c. investments in equity or debt instruments
d. sinking fund
EXAMPLE OF FINANCIAL ASSETS
a. physical assets, such as inventories, biological assets, PPE and investment property
b. intangible assets
c. prepaid expenses and advances to suppliers
d. the entity’s own equity instrument
NOT FINANCIAL ASSETS
a. payables
b. lease liabilities
c. held for trading liabilities and derivative liabilities
d. redeemable preferences shares issued
e. security deposits and other returnable deposits
EXAMPLES OF FINANCIAL LIABILITIES
a. unearned revenue and warranty obligations that are to be settled by future delivery goods, or provision of service
b. taxes, SSS, philhealth, and PAG-IBIG payables
d. constructive obligations
NOT AN EXAMPLE OF FINANCIAL LIABILITIES
The entity has a contractual obligation to pay cash or another financial asset or to exchange financial instruments under potentially unfavorable condition
PRESENTATION OF FINANCIAL LIABILITY
The entity has no obligation to pay cash or another financial asset or to exchange financial instruments under potentially unfavorable condition
PRESENTATION OF EQUITY INSTRUMENT
variable number for a fixed amount
fixed number for a variable amount
FINANCIAL ASSET/LIABILITY
fixed number for a fixed amount
EQUITY INSTRUMENT
- 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 obliged to pay for the redemption price
REDEEMABLE 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 discretions of the issuer and therefore has no obligation to pay unless it chooses to call on the shares
CALLABLE PREFERENCE SHARES
members’ shares in cooperative entities and similar instruments in equity if;
a. the entity has an unconditional right to refuse redemption of the members shares
b. redemption is unconditionally prohibited by law or relevant regulation
a financial instrument that from the issuer’s perspective, contains both a liability and an equity (an example of this is convertible bonds)
compound financial instrument
-are the 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
treasury shares
the classification of financial instrument as a financial liability or an equity instruments determines the accounting for the related __________
interest, dividends, losses, and gains
recognized as income or expense in profit or loss
financial liability
recognized directly in equity
equity instruments
transaction costs on issuing instruments
deduction from equity
transaction costs on issuing financial liabilities
amortized to profit and loss
transaction costs on issuing compound financial instruments
allocated to the debt and equity components
transaction costs that related jointly to more than one transaction
allocated to those transaction using rational basis of allocation
cost of abandoned equity
recognized as expense
offsetting a financial assets and financial liability
a. a legal right of offset
b. an intention to settle the amounts of a net basis or simultaneously
neither a legal right alone nor an intention alone warrants offsetting:
- a mere intention to settle net without the right to do so is not sufficient to justify offsetting because the rights and obligations associated with the individual financial asset and financial liability remain unaltered
- conversely, a legal right to settle net without intention to do so is also not sufficient to justify because this does not reflect the entity’s expected future cash flows from settling two or more separate financial instruments
offsetting is inappropriate for:
a. financial or other assets that are pledged as collateral for non-recourse financial liabilities
b. sinking fund and the related financial liability
