PART III Financial Liabilities & Equity

Equity

Share Capital : ordinary shares, preference shares, partnerships

Reserves : Retained earnings (accumulated profits and losses )
Treasury Shares : les actions que l’on va racheter on va les mettre dans treasury shares. Separate
disclosure on balance sheet (=negative equity) or in footnotes required (IAS 32)

Ecriture comptable : Issuance of Shares

Exemple : Issues X shares of $1 par value at 3$. Issuance costs: $Y

Dr. Cash X*3$ - Y Cr. Issued Capital 1$ * X

Cr. Capital Reserves Cash – Issued Capital

Exemple : Issues X shares of $2 par value at 50 cents discount. Issuance costs: $Y.

Dr. Cash X*1,50$ - Y Cr. Issued Capital 3$ * X

Dr. Capital Reserves (Cash – Issued Capital)

Ecriture comptable Treasury Shares

Exemple : buys back X shares with a par value of €1.00 for €2.20 each.

Dr. Treasury Shares X * 2,2 Cr. Cash X * 2,2

(negative equity )

Exemple : Alternative A: reissues the shares at €3.00 each.

Dr. Cash X * 3 Cr. Treasury Shares X * 2,2

Cr. Capital Reserves difference

Exemple : Alternative B: reissues the shares at €1.50 each.

Dr. Cash X * 1,5 Cr. Treasury Shares X * 2,2

Dr. Capital Reserves difference

Financial Liabilities

The Debt vs. Equity Distinction : If not a liability is equity

Contractual obligation : To deliver cash/cash equivalents (On paye)

Settlement in own equity instruments : Are equity instruments own or issued by somebody else ? si cest
pas a toi cest un financial liabilities
Is the amount to deliver or exchange fixed or variable? Variable debt
Characteristics of puttable instruments : Contractual obligation to repurchase or redeem the instrument
on exercise of the put. The right to put the instrument back to the issuer for cash or another FA.

Equity : No obligation, No redeemable (pas echanger ), No cumulative dividend. Si on paye un premium

pour l’obtention, derivatives.
Debt : quand on peut pas eviter de payer. Lorsque la vente des actions n’appartient pas cest un Debt

Compound Financial Instruments

Some instruments contain both a liability and an equity component, Such components shall be classified
Separately. On va comptabiliser differement la partie equity avec l’option et liablity avec la parti debt.
If the note is converted, transfer from liability into equity
If the note is redeemed, equity component remains in equity

Ecriture comptable : Compound Financial Instruments

VALUE OPTION (premium) = PV Liability — PV Liability without conversion option

PV Liability = Nominal * interet de gain / Actualisé avec l’interet de la debt

PV Liability without conversion option = Nominal * interet de gain / Actualisé avec l’interet SANS OPTION

Exemple au moment de l’achat du compound :

Dr. Cash 2m (le gain) Cr. Liability 1,848,122

Cr. Equity 151,878 (la Value OPTION)

Exemple encaissement d’interet :

Dr. Interest Expense (P&L) 9%*1,848,122=166,331 Cr. Cash 120,000

Cr. Liability 46,331

Measurement of Financial Liabilities :

Fair value through profit or loss : Derivatives, trading portfolio, fair value option.
Other liabilities : All liabilities not measured at fair value through profit or loss, measurement at amortized
cost ▪ Interest expense according to effective interest rate (accrual basis).

Present Value = Expected cash flow de l’année en question / discount rate de l’année en question (Risk
Free Spot Rate + Credit Spread de l’ent)

PV Hypothycal = la valeur sans la deterioration et la diminution de l’expected cash flow

PV Actual = La valeur reelle, avec la deterioration
Gain = PV Hypothycal -- PV Actual
GAIN : cette difference est vu comme un gain from the deterioration in the liability’s own credit risk.
Under IFRS 9, this portion of the aggregate result is reported in OCI if the fair value option was elected for
the instrument.

Financial Guarantee : A financial guarantee contract is a contract that requires the issuer to make specified
payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment
when due in accordance with the original or modified terms of a debt instrument.

Exemple : Bank A pays a certain amount to Bank B if something happens with Bank B’s borrower
Bank A only pays if Bank B’s borrower actually fails =Financial Guarantee
Bank A’s obligation is independent of Bank B’s actual loss=Financial Deriviative

issuers should apply IFRS 9 to those contracts even though they meet the definition of an insurance contract in IFRS 4
Holders of financial guarantee contracts shall not apply IFRS 9 but IFRS 4 (IFRS 9.B2.5(a)).