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Summary Financial Reporting 2 (ACC2012W) - Financial Instruments
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Summary of all that you must know for Financial Instruments
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FINANCIAL INSTRUMENTSWHAT IS A FINANCIAL INSTRUMENT?
IAS32.11 – FINANCIAL INSTRUMENT
A financial instrument is any contract that gives rise to a financial asset of one entity and a
financial liability or equity instrument of another entity.
IAS32.11 – FINANCIAL ASSET
A financial asset is any asset that is:
1. Cash
2. An equity instrument of another entity
3. A contractual right:
3.1. To receive cash or other financial asset from another entity, or
3.2. To exchange financial assets for financial liabilities
Cash
An equity
Financial asset
instrument
To receive cash or
other financial
asset
A contractual right
To exchange
financial assets for
financial liabilities
EQUITY INSTRUMENT
An equity instrument is any contract that evidences a residual interest in the assets of the
entity after deducting all of its liabilities.
- Some kind of instrument that tells the owner that they have equity investment in
another entity.
- Essentially, the entity was able to raise share capital or another form of equity.
, IAS32.11 – FINANCIAL LIABILITY
A financial liability is a contractual obligation:
(a) To deliver cash or another financial asset to another entity
(b) To exchange financial assets or financial liabilities with another entity under
conditions that are potentially unfavourable to the entity
Cash
Another financial
asset
Contractual
Financial liability obligation to
deliver Settle with own
equity
instruments
Exchange FI
where conditions
are unfavourable
TO IDENTIFY A FINANCIAL INSTRUMENT
1. Identify the changes in assets, liabilities and equity for both parties as a result of
the transaction.
2. Identify whether there is a contract or agreement between two parties.
3. Identify whether one party has a financial asset (made an investment decision that
led to a liability or equity instrument for the other party).
4. Identify whether the other party has a financial liability or an equity instrument
in itself.
5. If there is a financial asset and a corresponding financial liability/equity in another
party, then there is a financial instrument.
WHEN CAN WE BRING A FINANCIAL INSTRUMENT INTO OUR FINACIAL
STATEMENTS?
IFRS9:3.1.1
An entity shall recognise a financial asset or a financial liability in its statement of financial
position when, and only when, the entity becomes party to the contractual provisions of the
instrument.
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