FINANCIAL INSTRUMENTS

Meidyah Indreswari, PhD, CA, CRMA, CCSA

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WHAT IS FINANCIAL INSTRUMENTS?

 A financial instrument is any contract that gives rise to a financial

asset of one entity and a financial liability or equity instrument of
another entity. (IAS 32 par.11)

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FINANCIAL INSTRUMENTS

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THE MAIN FEATURES OF FINANCIAL INSTRUMENTS

 Derivatives (has underlying assets),

 Equities (e.g. shares) and
 Debt instruments (including receivables).

In addition to the three basic instruments, there are hybrid or

compound financial instruments with more complicated features.

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MAIN FEATURES OF FINANCIAL INSTRUMENTS

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FINANCIAL ASSETS

 Cash,
 Equity instruments of another entity (e.g. shares),
 Contractual right
 To receive cash or another financial asset of another entity (e.g.
trade receivable);
 To exchange financial assets or financial liabilities with another
entities under potentially favorable conditions (e.g. foreign
currency forward contract with positive outcome – derivative
asset)
 Contract settled with variable amount of own equity instruments

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CLASSIFICATION OF FINANCIAL ASSETS

 Amortized Cost
 Trade account receivable
 Simple loan, and
 Bonds held to maturity
 Exclude Equity
 Financial Assets at FV through CI (FVOCI)
 Equity or Debt Investments (Bonds)
 Available for sale category
 Gain and loss  its not from operating

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EXAMPLE A DEBT INVESTMENT CLASSIFIED AS FVOCI

PT X purchases 5% bonds for $1 million on Januari 1, Year 1. The bonds mature

on Dec 31, Year 2. PT X meets the IFRS 9 business model because it sells its debt
securities infrequently
Jurnal:
Debt Investment 1.000.000
Cash 1.000.000
Assume that the bonds pay interest once a year on Dec 31. Interest rates in the
economy fall during Year 1, caused the bonds to appreciate. Their FV is $1,2
million on Dec, 31 Year 1
Jurnal:
Cash 50.000
Interest Income 50.000

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EXAMPLE A DEBT INVESTMENT CLASSIFIED AS FVOCI

Jurnal:
Debt Investment 200.000
Other Comprehensive Income 50.000

PT X sells the bonds for $1,2 million on Januari Year 2. PT X closes its books
annualy.
Journal:
Cash 1.200.000
OCI 200.000
Debt Investment FVOCI 1.200.000
Realized Gain on Debt Investment 200.000

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EXAMPLE A DEBT INVESTMENT CLASSIFIED AS FVOCI

 PT Y purchases marketable securities for $20.000 Oct 15, Year 1

Journal:
Marketable Securites 20.000
Cash 20.000
 On Dec 31, the value of securities have risen to $22.000
Marketable Securites 2.000
OCI 2.000
 Febr 1, Year 2, securities was sold for $23.000
Cash 23.000
Marketable Securities 22.000
OCI 1.000

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CLASSIFICATION OF FINANCIAL ASSETS

 Financial Assets at FV through profit and loss (FVPL)

 Residual category
 Asset held for trading (Bonds and Equity)
 Debt instrument not qualifying for amortized cost or FVOCI
 Equity instruments not included in FVOCI
 Derivatives not qualifying for hedge accounting

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WHAT IS A FINANCIAL LIABILITY?

 A contractual obligation
 To deliver cash or another financial asset to another entity (e.g.
loan taken, trade payable), or
 To exchange financial assets or financial liabilities other than the
entity’s own equity under potentially unfavorable conditions.

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THE CATEGORY OF FINANCIAL LIABILITY

 Financial liabilities measured at amortized cost

 We borrow money
 Notes payable, banks, bonds payable and deposits from
customers
 Financial liabilities measured at FV through profit and loss (FVPL)

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WHAT IS DERIVATIVE?

 Derivatives are contracts, which convey the right/obligation to buy or sell

a specified asset at a specified price at a specified future date
 Example: Hedge accounting, future, option, or warrant, whose value
derives from and is dependent on the value of an underlying asset.
 Main types of derivatis
 Forwards  A customized contract between 2 parties to buy or sell an
asset at a specified price at specified future date
 Futures  like forwards, but are standardized and regulated
 Option  A contract that gives the right but not the obligation to buy
(call) or sell (put) a security or other financial assets
 Swaps  the exchange of one security for another, based on
difference factors
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SEKIAN

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