CHAPTER 1
Financial Instruments
LEARNING OBJECTIVES
After studying this chapter, you should have a grasp of the following concepts:
- Accounting standards for financial instruments.
- Definition of financial instruments.
- Financial assets and financial liabilities.
- Categories of financial instruments.
- Fair value measurement concepts.
- Recognition and derecognition of financial instruments.
- Types of investments.
- Difference between investment and speculation.
- Two major accounting standards: U.S. GAAP and IFRS.
- Hierarchy of U.S. GAAP and IFRS.
ACCOUNTING STANDARDS FOR FINANCIAL INSTRUMENTS
The topic of accounting standards for financial instruments covers the following aspects:
- Definition of financial instrument, financial asset, financial liability, and equity instrument.
- Definition of a derivative instrument.
- Different types of contracts that are covered within the scope of the accounting standards for financial instruments.
- Four categories of financial instruments.
- Fair value and fair value determination.
- Accounting treatment of different categories of financial instruments.
- Recognition and derecognition of financial instruments.
- Initial measurement and subsequent measurement of financial instruments.
- Effect of changes in fair value.
- Reclassification and its impact.
- Impairment and its treatment for different categories.
- Hedge accounting concepts.
The synopsis of the accounting standards under the International Financial Reporting Standards (IFRS), IAS 39, is given in Appendix B. ...
