Financial instruments presentation ASPE 3856 IAS 32

Question 1

How are financial instruments classified
between debt and equity?

Answer 1

ASPE 3856
* Based on substance rather than legal form considering the definition of a liability vs. equity
‒ e.g., pref shares that redeemable/retractable at the
option of holder are in substance liability because they require future cash outflows that the
entity has no discretion to avoid ‒ exception for pref shares used in tax planning arrangement)

IFRS 9
* Same but no exception for tax planning

Question 2

What are the criteria for offsetting a financial
asset and liability?

Answer 2

ASPE 3856 and IAS 32

• Legally enforceable right to offset the amounts
• Intention to settle on a net basis or settle
  simultaneously

Question 3

How should compound instruments (those with a debt and equity component) be accounted for?

Answer 3

ASPE 3856
* Classify debt and equity components separately
* Can either allocate all of the proceeds to
the debt component (measure equity at $0) or
use the residual method and measure the equity
component at proceeds less the fair value of the debt
component (the residual amount)

IAS 32
* Classify debt and equity components separately
* Must use the residual method and measure
the equity component at total proceeds less the
fair value of the debt component (the residual
amount)