IAS 32 Financial Instruments: Presentation (2024)

FAQs

What are the financial instruments examples for IAS 32? ›

One is a financial liability, namely the issuer's contractual obligation to pay cash, and the other is an equity instrument, namely the holder's option to convert into common shares. Another example is debt issued with detachable share purchase warrants.

IAS 32 classifies financial instruments into financial assets, financial liabilities and equity in accordance with the substance of the arrangement and the definitions of these elements. In certain cases, such as convertible debt, the instrument is split into a liability and equity element.

In December 2005 the Board amended IAS 32 by relocating all disclosures relating to financial instruments to IFRS 7 Financial Instruments: Disclosures. Consequently, the title of IAS 32 changed to Financial Instruments: Presentation.

An entity may present a single statement of profit or loss and other comprehensive income, with profit or loss and other comprehensive income presented in two sections. The sections shall be presented together, with the profit or loss section presented first followed directly by the other comprehensive income section.

The following are examples of items that are not financial instruments: intangible assets, inventories, right-of-use assets, prepaid expenses, deferred revenue, warranty obligations (IAS 32.

Examples of financial instruments include stocks, exchange-traded funds (ETFs), mutual funds, real estate investment trusts (REITs), bonds, derivatives contracts (such as options, futures, and swaps), checks, certificates of deposit (CDs), bank deposits, and loans.

(i) If the highest and best use of the asset is to use the asset in combination with other assets or with other assets and liabilities, the fair value of the asset is the price that would be received in a current transaction to sell the asset assuming that the asset would be used with other assets or with other assets ...

A convertible note is a short-term debt instrument that automatically turns into equity when a predetermined milestone or conversion event occurs.

The two basic requirements of IAS 32 are that offsetting is applied if, and only if, an entity: currently has a legally enforceable right to set-off the recognised amounts; and. intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Physical assets, for example inventories, property, plant and equipment. Control of these assets creates an opportunity to generate an inflow of cash or another financial asset, but it does not give rise to a present right to receive cash or another financial asset.

Why are prepayments not financial instruments? ›

This means that a prepayment, for instance, is not a financial asset, because in this case, there is a right to receive a future good or service, not cash or a financial asset.

Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the IASB's Conceptual Framework for Financial Reporting (Conceptual Framework).

The objective of financial statements is to provide information about the financial position, performance and cash flows of an enterprise that is useful to a wide range of users in making economic decisions. 13. Financial statements prepared for this purpose meet the common needs of most users.

The standard requires a complete set of financial statements to comprise a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity and a statement of cash flows.

In simple words, any asset which holds capital and can be traded in the market is referred to as a financial instrument. Some examples of financial instruments are cheques, shares, stocks, bonds, futures, and options contracts.

Stock, bonds, and options contracts are some examples of financial instruments. [Last updated in July of 2021 by the Wex Definitions Team] COMMERCE.

Financial instruments recognized in the balance sheet include cash and cash equivalents, securities, other financial receivables, trade receivables, trade payables, loans and derivatives. Current investments and derivatives are recognized on the trade date.