B Financial Reporting Standards Flashcards
(235 cards)
What is a financial instrument
any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity (IAS 32, para 11)
A financial asset is any asset that is:
cash
an equity instrument or another entity
a contractual right to receive cash or another financial asset form another entity
a contractual right to exchange financial instruments with another entity under conditions that are potentially favourable
a financial liability is any liability that is a contractual obligation:
to deliver cash to another financial asset to another entity
to exchange financial instruments with another entity under conditions that are potentially unfavourable
what is an equity instrument?
any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities
What does IAS 32 Financial instruments:presentation deal with?
classification of financial instruments and their presentation
What does IFRS 7 deal with?
disclosure of financial instruments in financial statements
What does IFRS 9 Financial instruments deal with?
how financial instruments are measures and when they should be recognised in financial statements
Why was a new accounting standard issued?
- financial instruments more complex
- accounting scandals: financial instruments at the heart of them
- concerns about growth, consistency, overstated gains, profit recognition
How must the issuer classify a financial instrument?
if it is a financial liability or equity instrument on initial recognition according to its substance
When will an instrument be classified as a financial liability?
if the issuer has a contractual obligation to:
- deliver cash to the holder
- exchange financial instruments on potentially unfavourable terms
When is a financial instrument an equity instrument?
if there is no such contractual obligation to deliver cash
Why are preference shares classified as debt instruments even though they are ‘shares’?
- entity receives cash inflow
- annual payments % of nominal value
- cash repaid in future if redeemable
- if non redeemable, and cumulative, still liabilities as there is still an obligation to pay later
-only irredeemable aren’t considered
When can you offset a financial asset and liability according to IAS 32?
a financial asset and a financial liability may only be offset in very limited circumstances. the net amount may only be reported when the entity:
- has legally enforceable right to set off the amounts
- intends either to settle on a net basis or to realise the asset and settle the liability simultaneously
What is the initial measurement of financial instruments according to IFRS 9?
initially recognised at fair value
How are issued equity instruments remeasured after initial recognition?
issued shares are not remeasured
What is the par value?
headline/nominal value
what is the coupon rate?
minimum interest repayment per annum based on par value
what is the premium?
amount repayable at redemption date based on par
what is the effective interest rate?
rate of interest that spreads the finance costs across the life of the loan at a constant rate
what is the initial measurement of financial liabilities?
fair value
-transaction costs are capitalised (P/L)
what is subsequent measure of financial liabilities?
depends if held for trading/derivatives or other liabilities other than FVPL
What liabilities are FVPL?
instruments held for trading
derivatives
what is the subsequent measure of FVPL liabilities?
FV
-expense transaction cost
restate FV at each reporting date
-gain and loss to P/L
what is subsequent measure of non FVPL liabilities?
FV less costs
measure at amortised cost