IAS 32

Question 1

What does IAS 32 cover?

Answer 1

Financial instruments (presentation)

Question 2

What is the definition of a financial instrument?

Answer 2

It’s a contract that results in a financial asset for one entity and a financial liability or equity instrument for another

Question 3

How are financial instruments shown?

Answer 3

As one of the 3 options below -

1. Assets (if we expect future benefits)
2. Liability (if we have an obligation to make a payment)
3. Equity (residual - if its not an asset or a liability)

Question 4

When is an financial instrument obligation an equity item?

Answer 4

If we have an obligation that can be settled by issuing a FIXED NUMBER of equity instruments- then its an equity item

Question 5

When is a financial instrument a liability?

Answer 5

If we have an obligation that can be settled by issuing a VARIABLE NUMBER of equity instruments it’s a liability

Question 6

What is a compound financial instrument?

Answer 6

It’s an instrument that has both a liability and an equity component.

We recognise both separately. Ie Kinder egg

Ie The loan liability and the option to convert to shares

Question 7

How do we recognise the liability for a compound financial instrument?

Answer 7

We recognise it as the present value of the cash flows discounted at the market interest rate.

Interest and capital

Question 8

How do we recognise the equity of a compound financial instrument?

Answer 8

We recognise the Residual value
Dr bank
Cr loan
Cr equity bal*

Question 9

What are redeemable shares?

Answer 9

These are shares that we are obligated to buy back