Villeza, Patrisha Rae G.

AIS- 181

PAS 32 PFRS 9
Financial Instruments- Presentation Financial Instruments

 Specifies presentation of financial  Financial Instruments deals with,

instruments, particularly as to the among other things, initial recognition
classification of such instruments into of financial assets and liabilities,
financial assets, financial liabilities and measurement subsequent to initial
equity instruments. The standard also recognition, impairment,
provide guidance on the classification derecognition, and hedge accounting
of related interest, dividends and
gains/losses, and when financial  Establish principles for the financial
assets and financial liabilities can be reporting of financial assets and
offset. financial liabilities that will present
relevant and useful information to
 The objective of PAS 32 is to establish users of financial statements for their
principles for presenting financial assessment of the amounts, timing
instruments as liabilities or equity and and uncertainty of an entity’s future
for offsetting financial assets and cash flows.
liabilities.
 All financial instruments are initially
 Addresses in a number of ways: measured at fair value plus or minus,
clarifying the classification of a in the case of a financial asset or
financial instrument issued by an entity financial liability not at fair value
as a liability or as equity, prescribing through profit or loss, transaction
the accounting for treasury shares (an costs.
entity's own repurchased shares),
prescribing strict conditions under DEFINITIONS:
which assets and liabilities may be
offset in the balance sheet
 INITIAL RECOGNITION OF
 Financial instrument: a contract that FINANCIAL ASSETS AND
gives rise to a financial asset of one FINANCIAL LIABILITIES
entity and a financial liability or equity -When the entity becomes party to
instrument of another entity. the contractual provisions of the
instrument.
DEFINITIONS:
 INITIAL MEASUREMENT OF
 Financial asset is any asset that is FINANCIAL ASSETS AND
cash, an equity instrument of another FINANCIAL LIABILITIES
entity, a contractual right to receive -At fair value, plus for those financial
cash or another financial asset from assets and liabilities not classified at
another entity; or to exchange financial fair value through profit or loss,
assets or financial liabilities with directly attributable transaction costs.
another entity under conditions that
are potentially favourable to the entity; -Fair value - is the price that would be
or a contract that will or may be settled received to sell an asset or paid to
in the entity's own equity instruments transfer a liability in an orderly
and is a non-derivative for which the
transaction between market
entity is or may be obliged to receive a
participants at the measurement date
 variable number of the entity's own -Directly attributable transaction
equity instruments, a derivative that costs - incremental costs that are
will or may be settled other than by the directly attributable to the acquisition,
exchange of a fixed amount of cash or
issue or disposal of a financial asset or
another financial asset for a fixed
number of the entity's own equity financial liability.
instruments. For this purpose, the
 In other words transaction cost would
entity's own equity instruments do not
include instruments that are immediately be recognized as an
themselves contracts for the future expense if the financial asset or
receipt or delivery of the entity's own liability is classified at fair value
equity instruments, puttable through profit or loss.
instruments classified as equity or
certain liabilities arising on liquidation
classified by PAS 32 as equity  SUBSEQUENT CLASSIFICATION
instruments. AND MEASUREMENT OF
FINANCIAL ASSETS
 Financial liability is any liability that is
contractual obligation to deliver cash  Debt instruments shall be classified
or another financial asset to another at Amortized Cost (AC), Fair Value
entity; or to exchange financial assets through Other Comprehensive
or financial liabilities with another Income (FVOCI) or Fair Value
entity under conditions that are through Profit or Loss (FVPL).
potentially unfavourable to the entity. It
also a contract that will or may be  Equity instruments shall be
settled in the entity's own equity classified at Fair Value through Other
instruments and is a non-derivative for Comprehensive Income (FVOCI) or
which the entity is or may be obliged to Fair Value through Profit or Loss
deliver a variable number of the (FVPL).
entity's own equity instruments or a
derivative that will or may be settled
other than by the exchange of a fixed
amount of cash or another financial
asset for a fixed number of the entity's
own equity instruments. For this
purpose the entity's own equity
instruments do not include:
instruments that are themselves
contracts for the future receipt or
delivery of the entity's own equity
instruments; puttable instruments
classified as equity or certain liabilities
arising on liquidation classified by PAS
32 as equity instruments.

 Equity instrument is any contract that

evidences a residual interest in the
assets of an entity after deducting all
of its liabilities.

 Compound financial instruments-

Some financial instruments –
sometimes called compound
instruments – have both a liability and
an equity component from the issuer's
perspective. In that case, PAS 32
requires that the component parts be
accounted for and presented
separately according to their
substance based on the definitions of
liability and equity. The split is made at
issuance and not revised for
subsequent changes in market
interest rates, share prices, or other
event that changes the likelihood that
the conversion option will be
exercised.