Summary
IAS 32 - Financial Instruments Summary
- Course
- Financial Accounting 379
- Institution
- Stellenbosch University (SUN)
This is a basic summary on the concepts of Financial Instruments
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IAS 32 – FINANCIAL INSTRUMENTSa) During life of instrument
DIVIDENDS
1. Non-discretionary dividend
- Compulsory dividend
- Issuer cannot avoid these payments – contractual obligation to deliver cash
- Thus: financial liability
2. Discretionary dividend
- Issuer must declare div – to create liability – at choice of directors
- No obligation to deliver cash – so no fin liab
- Thus: equity
INTEREST
1. Compulsory
- Timing and rate – stipulated in contract
- Compulsory interest payments = financial liability
2. Non-compulsory
- Issuer – no obligation to pay interest or deliver cash
- Thus: equity
b) End of life of instrument
REDEMPTION
Def: instrument where capital will be repaid – at end of its life
1. Redemption at option of holder
- Holder can decide – thus issuer cannot opt out of paying
- Obligation to deliver cash
- Thus:
2. Compulsory Redemption
- Issuer has obligation to deliver cash
- Thus: financial liability
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