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IFRS Essentials by Norbert Lüdenbach, Dieter Christian

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IAS 32 FINANCIAL INSTRUMENTS: PRESENTATION

1 THE TERM “FINANCIAL INSTRUMENT”

The term “financial instrument” used in IAS 32 as well as in other standards is defined in IAS 32. According to this definition, a financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or an equity instrument of another entity (IAS 32.11). The terms used in this definition are defined as follows:

  • The term “entity” includes individuals, partnerships, incorporated bodies, government agencies, and trusts (IAS 32.14).
  • An equity instrument (e.g. a share) is a contract that demonstrates a residual interest in the assets of an entity after deducting all of its liabilities (IAS 32.11).
  • Financial assets include (among others) (IAS 32.11):
    • Cash.
    • Equity instruments of other entities held by the entity.
    • A contractual right to receive cash or another financial asset from another entity (i.e. certain receivables).
    • A contractual right to exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity (this definition comprises financial derivatives with a positive fair value).
  • Financial liabilities include (among others) (IAS 32.11):
    • A contractual obligation to deliver cash or another financial asset to another entity.
    • A contractual obligation to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity (this ...

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