Accounting Standard (AS) 30 Financial Instruments: Recognition and Measurement

Limited Revisions to
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AS 2, AS 11 (revised 2003), AS 21, AS 23, AS 26, AS 27 AS 28 AS 29

OBJECTIVE

Recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. Requirements for presenting information about financial instruments

DEFENITIONS
Derivative  (a) its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract  (b) it requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors  (c) it is settled at a future date.

RECOGNITION

An entity should recognise a financial asset or a financial liability on its balance sheet when, and only when, the entity becomes a party to the contractual provisions of the instrument.

DERECOGNITION
Three conditions.

The part comprises only specifically identified cash flows from a financial asset (or a group of similar financial assets). The part comprises only a fully proportionate (pro rata) share of the cash flows from a financial asset (or a group of similar financial assets) The part comprises only a fully proportionate (pro rata) share of specifically identified cash flows from a financial asset (or a group of similar financial assets).

Measurement
When a financial asset or financial liability is recognised initially, an entity should measure it as follows:

(a) A financial asset or financial liability at fair value through profit or loss should be measured at fair value on the date of acquisition or issue. (b) Short-term receivables and payables with no stated interest rate should be measured at original invoice amount if the effect of discounting is immaterial. (c) Other financial assets or financial liabilities should be measured at fair value plus/ minus transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability

ACCOUNTING STANDARD 31: FINANCIAL INSTRUMENTS :PRESENTATIONS

OBJECTIVE
1. The objective of this Standard is to  establish principles for presenting financial instruments as liabilities or equity  for offsetting financial assets and financial liabilities.  classification of financial instruments, from the perspective of the issuer into: financial assets, financial liabilities equity instruments;  classification of related interest,dividends, losses and gains;  The circumstances in which financial assets and financial liabilities should be offset. 2. The principles in this Standard complement the principles for recognising and measuring

DEFENITIONS

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. In this Standard, ‘contract’ and ‘contractual’ refer to an agreement between two or more parties that has clear economic consequences that the parties have little In this Standard, ‘entity’ includes individuals, partnerships, incorporated bodies, trusts and government agencies.

Financial Assets and Financial Liabilities
LIABILITIES  (a) trade accounts payable  (b) bills payable  (c) loans payable  (d) bonds payable  The promissory notethe promissory note issuer

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ASSET (a) trade accounts receivable (b) bills receivable (c) loans receivable (d) bonds receivable (e) deposits and advances. The promissory note -the promissory note holder

A financial guarantee is a contractual right of the lender to receive cash from the guarantor, and a corresponding contractual obligation of the guarantor to pay the lender

Equity Instruments
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non-puttable equity shares, some types of preference shares warrants

Derivative Financial Instruments
Derivative financial instruments  financial options,  futures and forwards  interest rate swaps

Primary instruments  receivables  payables  equity instrument

currency swaps

Contracts to buy or sell non-financial items do not meet the definition of a financial instrument because the contractual right of one party to receive a non-financial asset or service and the corresponding obligation of the other party do not establish a present right or obligation of either party to receive, deliver or exchange a financial asset

Presentation

The issuer of a financial instrument should classify the instrument, or its component parts, on initial recognition as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset and an equity instrument.

Accounting Standard (AS) 32 Financial Instruments: Disclosures

OBJECTIVE
. The objective of this Standard is  to require entities to provide disclosures in their financial statements that enable users to evaluate: (a) the significance of financial instruments for the entity’s financial position and performance; and (b) the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the reporting date, and how the entity manages those risks. 2. The principles in this Accounting Standard complement the principles of AS 30 and AS 31

DISCLOSURES IN BALANCE SHEET
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Categories of financial assets and financial liabilities Financial assets or financial liabilities at fair value through profit or loss Reclassification Derecognition Collateral Allowance account for credit losses Compound financial instruments with multiple embedded derivatives Defaults and breaches

OTHER DISCLOSURES
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Accounting policies Hedge accounting Fair value

RISKS
QUALITATIVE  the exposures to risk and how they arise;  its objectives, policies and processes for managing the risk and the methods used to measure the risk  any changes in (a) or (b) from the previous period.

QUANTITATIVE  Credit risk  Liquidity risk  Market risk

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