Study Corporate Reporting: Financial Instruments

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ACCOUNTING FOR COMPOUND FINANCIAL INSTRUMENTS

30 June 2011

A compound financial instrument is a financial instrument that has the characteristics of both an equity and liability (debt). An example would be a bond that can be converted into shares. It doesn't matter whether the bondholders will ultimately opt for conversion. As long as there is the option to convert into shares, the financial instrument would carry an equity component.

RECLASSIFICATION OF FINANCIAL ASSETS

13 June 2011

IFRS 9 Financial instruments requires that when an entity changes its business model for managing financial assets, it should reclassify all affected financial assets. However, this reclassification only applies to debt instruments, as equity instruments must be classified as measured at fair value.

IMPAIRMENT OF FINANCIAL ASSETS

3 June 2011

An impairment occurs when the carrying amount of an asset exceeds its recoverable amount. IAS 39 Financial instruments: Recognition and measurement requires an entity to assess at the end of each reporting period whether there is any objective evidence that financial assets are impaired and whether the impairment impacts on future cash flows.

FINANCIAL INSTRUMENTS: MEASUREMENT

1 June 2011

The measurement of financial instruments can be divided into two parts, i.e. on initial recognition (how a financial asset or liability should be measured when it is first acquired or incurred) and subsequent to initial recognition (how a financial asset or liability should be measured at the reporting date).

FINANCIAL INSTRUMENTS: CLASSIFICATION

30 May 2011

Classification of financial assets

Under IFRS 9 Financial instruments, financial assets can be classified into four categories as follows:

Measured at amortised cost
Measured at fair value through profit or loss (FVTPL)

FINANCIAL INSTRUMENTS: RECOGNITION AND DERECOGNITION

Recognition

Under IFRS 9 Financial Instruments, an entity should recognise a financial asset or liability in its statement of financial position when the entity becomes a party to the contractual provisions of the instrument, rather than when the contract is settled.

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ACCOUNTING FOR COMPOUND FINANCIAL INSTRUMENTS