About
IAS 32 specifies presentation for financial instruments. The recognition and measurement and the disclosure of financial instruments are the subjects of IFRS 9 or IAS 39 and IFRS 7 respectively.
For presentation, financial instruments are classified into financial assets, financial liabilities and equity instruments. Differentiation between a financial liability and equity depends on whether an entity has an obligation to deliver cash (or some other financial asset).
However, exceptions apply. When a transaction will be settled in the issuer’s own shares, classification depends on whether the number of shares to be issued is fixed or variable.
A compound financial instrument, such as a convertible bond, is split into equity and liability components. When the instrument is issued, the equity component is measured as the difference between the fair value of the compound instrument and the fair value of the liability component.
Financial assets and financial liabilities are offset only when the entity has a legally enforceable right to set off the recognised amounts, and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
What you should know
- Know and apply the definitions of financial assets, financial liabilities and equity instruments.
- Classify financial instruments as financial liabilities or equity instruments from the issuer’s perspective.
- Apply the principles for compound financial instruments.
- Split compound financial instruments into liability and equity components.
- Account for treasury shares, interest, dividends, gains and losses.
- Apply the offsetting criteria for financial assets and financial liabilities.
- Present financial instruments in the financial statements.