Page 135 - Microsoft Word - 00 P1 IW Prelims.docx

Financial instruments

Financial instruments

1.1 Financial instrument definitions

IAS 32 says that a financial instrument is a contract that ‘gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity’ (IAS 32, para 11)

A financial asset is:

 ‘Cash

 An equity instrument of another entity

 A contractual right to receive cash or another financial asset

 A contractual right to exchange financial assets or liabilities on favourable
terms’ (IAS 32, para 11)

A financial liability is:

 ‘A contractual obligation to deliver cash or another financial asset

 A contractual obligation to exchange financial assets or liabilities on
unfavourable terms’ (IAS 32, para 11)

 A contract under which an entity is obliged to issue a variable number of its own
equity instruments.

Equity is ‘any contract that evidences a residual interest in the assets of an
entity after deducting all of its liabilities’ (IAS 32, para 11)

129