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Pas 32 Financial Instruments

The document discusses PAS 32, which relates to financial instruments. It defines a financial instrument as any contract that conveys financial assets of one entity and financial liabilities or equity of another. PAS 32 applies to all financial instruments except investments in subsidiaries, associates, joint ventures, and certain employee benefits and share-based payment plans. The document provides examples of financial assets and liabilities, and distinguishes between equity and liability instruments. It also discusses compound instruments, treasury shares, and the accounting for interest, dividends, losses and gains depending on the instrument classification.

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294 views

Pas 32 Financial Instruments

The document discusses PAS 32, which relates to financial instruments. It defines a financial instrument as any contract that conveys financial assets of one entity and financial liabilities or equity of another. PAS 32 applies to all financial instruments except investments in subsidiaries, associates, joint ventures, and certain employee benefits and share-based payment plans. The document provides examples of financial assets and liabilities, and distinguishes between equity and liability instruments. It also discusses compound instruments, treasury shares, and the accounting for interest, dividends, losses and gains depending on the instrument classification.

Uploaded by

aly salvatierra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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PAS 32 FINANCIAL INSTRUMENTS

Any contract that gives rights to both financial assets of


one entity and financial liability or equity instruments of
another entity.

PAS 32 applies to all types of financial instruments


except:
a. Investment in subsidiary, associates and join ventures
b. Employer’s rights and obligations under employee
benefits plan and share based payments
c. Insurance contracts
Exercise
Identify if it a financial instrument or not
1. Convertible bond
2. Foreign currency contracts
3. Warranty provision
4. Loan receivable
5. Cash
6. Entity’s ordinary share
7. Accounts payable
8. Patents
9. Prepaid expenses
10. Investment in share
11. Investment in bonds
Examples of Financial Assets
1. Cash and cash equivalents (bills and coins, checks,
cash in bank)
2. An equity instrument of another entity
3. Debt instruments of another entity
4. A contractual right to receive cash or another financial
asset from another entity (Trade receivable, notes and
loans)
5. Sinking fund and other long term funds
6. A contractual right to exchange financial instruments
with another entity under a conditions that are
potentially favorable
Not a Financial Asset
1. Physical assets such as inventories, biological asses,
PPE and investment property
2. Intangible assets
3. Prepaid expenses and advances to suppliers
4. The entity’s own equity instruments
Exercise
Identify if it is a financial asset or not
1. Patent
2. Agricultural produce
3. Land
4. Notes receivable
5. Goodwill
6. Prepaid expense
7. Inventory
8. Investment in bonds
9. Cash in bank
10. Biological asset
11. Time deposit
12. Money market placement
13. Building
14. Investment property
Examples of Financial Liabilities
1. Payables such as accounts, notes, loans and bonds
payable
2. Lease liability
3. Held for trading liabilities and derivative liabilities
4. Redeemable preference issued
5. Security deposits an other refundable deposits
Not a Financial Liabilities
1. Unearned revenues and warranty obligations that are o
be settled by future delivery of goods or provision of
services
2. Taxes, SSS, Philhealth and Pag-ibig payables
3. Constructive Obligations
Exercise
Identify if it is a financial liability or not
1. Trade accounts payable
2. Withholding tax payable
3. Warranty payable
4. Bonds payable
5. Notes payable
6. Lease liability
7. Loans payable
8. Redeemable preference share
9. Callable preference share
10. Share warrants
Financial liability VS. Equity Instruments
Determining if the Financial Instrument is a Financial
liability or Equity Instruments

Financial Liability Equity Instruments

The entity has a contractual The entity has no obligation to


obligation to pay cash or another pay cash or another financial
financial asset or to exchange asset or to exchange financial
financial instruments under instruments under potentially
potentially favorable condition favorable condition
Preference Shares
Redeemable Preference Share Callable Preference Share
Are preferred stock which the Are preferred stocks which the
holder has the right to redeemed issuer has the right to call at a set
at a set date. date.

- It is classified as Financial - It is classified as Equity


Liability Instrument.
Compound Financial Instruments
Is a Financial Instrument that, from the issuer’s
perspective , contains both a lability and an equity
component.

Examples:
1. Convertible bonds
2. Bonds payable issued with share warrants

Formula:
FV of the whole instruments (Issue Price)
Less: FV of the debt instruments without the equity feature
Equity Component
Exercise
ABC issued convertible bonds with face amount of
P1,000,000 at 105. Each P1,000 bond is convertible into 8
shares with par value of P100 per share. On issue date,
the bonds are selling at 98 without conversion option.
Treasury Shares
Entity’s own share that were previously issued but were
subsequently reacquired but not retired.
Interest, Dividends, Losses and Gains
The classification of financial instruments as financial
liability or an equity instrument determines the
accounting for he related interest, dividends, losses and
gains.

Financial Liability Equity Instrument


Are recognized as income or Are recognized directly in equity
expenses
Offsetting
A financial asset and a financial liability are offset and
only the net amount is presented in the statement of
financial position when:
1. A legal right of offset and
2. An intention to settle the amounts on a net basis or
simultaneously

However, it is inappropriate for a financial or other asset


that are pledged as collateral for non-recourse financial
liability and a sinking fund and the related financial
liability for which the fund was established.

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