IAS 32 – Financial Instruments

Contract

Financial Asset Financial Liability Equity Instrument

Investment in Contractual right to Settlement in entity’s Contractual Settlement in entity’s own

Cash Equity = Assets - Liabilities
shares receive own equity instruments obligation to deliver equity instruments

· Cash Variable number · Cash

Variable number of
· Another Financial Asset of equity · Another Financial Asset
equity instruments
· Potentially Favorable Derivative instruments · Potentially Unfavorable Derivative

PRESENTATION COMPOUND FINANCIAL INSTRUMENT

Financial Liability Based on substance Financial liability Equity instrument

Equity Instrument
and definition

Exception – Puttable
Settlement Treasury Share shown as FV by discounting using By deducting FV of FL
Instrument (Features)
deduction from equity market interest rate from FV of CFI

Prorate share in net Subordinate to all

Option to settle in Contingent 1. Interest, dividend, losses and gains
assets other classes
either cash or shares Provisions related to Financial liabilities At maturity
recognized as an expense in P&L 1. Conversion
No other obligation 2. Repurchase
Identical features to deliver cash than 2. Dividend related to equity
redemption instrument recognized in equity
Before maturity
Expected cash flows from P&L, change in Net Offsetting only 1. Conversion
assets and fair value change in net assets only 1. legally enforceable right to set-off 2. Repurchase

2. intends either to settle on net basis or

Reclassification to realize asset and settle the liability
simultaneously Induced conversion
Additional payment recognize as a loss in P&L
Difference between CA of Equity instrument to Financial liability to
No gain / loss
EI and FV of FL in equity financial liability equity instrument