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Financial assets and financial liabilities

Financial instruments

1.1 Financial instrument definitions

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)

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