Financial Assets

Question 1

According to IAS32, what is a financial instrument?

Answer 1

A financial instrument is any contract that gives rise to a financial asset (debit) in one entity and a financial liability or equity instrument (credit) in another entity.

Question 2

In FI, a contract exists that?

Answer 2

• holds certain rights and obligations for both parties to the contract.
• Is defined as a financial asset in hands of one party (holder)
• is defined as either a financial liability/equity in the hands of the other party(issuer)

Question 3

IAS 32- Financial asset definition

Answer 3

cash; or
an equity instrument of another entity; or
a contractual right to receive cash or other financial assets from another entity; or
a contractual right to exchange financial assets or liabilities with positive outcome.

Question 4

What is a financial liability/ contractual obligation?

Answer 4

deliver cash to another entity; or
deliver a financial asset to another entity; or
exchange financial assets or liabilities with a negative outcome for the entity.

Question 5

What is an equity instrument?

Answer 5

any contract that evidence a residual interest in the assets of an entity after deducting all of its liabilities (e.g. ordinary shares

Question 6

What is a compound instrument?

Answer 6

an instrument that has components of both financial liabilities and equity instruments.

Question 7

Financial asset is classified as equity only if:

Answer 7

The issuer:
• has no contractual obligation to deliver cash or another financial asset, or
• is not exchanging financial assets or liabilities with a negative outcome for the issuer.

Question 8

Financial asset is a financial liability?

Answer 8

if it leads to a contractual obligation to deliver cash or an asset.