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Accounting for Investments, Equities, Futures and Options, Volume 1 by R. Venkata Subramani

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APPENDIX B

Accounting Standards for Financial Instruments

The main ingredients of IAS 39 on Financial Instruments: Measurement and Recognition are as follows.

FINANCIAL INSTRUMENTS

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.

Financial Asset

Examples of financial assets include the following:

  • Cash.
  • Equity instrument of another entity.
  • A contractual right
    • To receive cash or another financial asset from another entity.
    • To exchange financial assets or financial liabilities with another entity under conditions that are, potentially favorable to the entity.
  • A contract that will or may be settled in the entity’s own equity instruments and is
    • A non-derivative resulting in receiving a variable number of the entity’s own equity instruments.
    • A derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments.

Financial Liability

A financial liability can be described in one of two ways:

1. A contractual obligation

  • To deliver cash or another financial asset to another entity.
  • To exchange financial assets or financial liabilities with another entity under conditions that are, potentially unfavorable to the entity.

2. A contract that will or may be settled in the entity’s own equity instruments and is

  • A non-derivative resulting in delivering a variable number of the ...

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