Objective
1 [Deleted]
2 The objective of this Standard is to establish principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and financial liabilities. It applies to the classification of financial instruments, from the perspective of the issuer, into financial assets, financial liabilities and equity instruments; the classification of related interest, dividends, losses and gains; and the circumstances in which financial assets and financial liabilities should be offset.
3 The principles in this Standard complement the principles for recognising and measuring financial assets and financial liabilities in IFRS 9 Financial Instruments, and for disclosing information about them in IFRS 7 Financial Instruments: Disclosures.
Scope
4 This Standard shall be applied by all entities to all … Read more
Liabilities and equity (see also paragraphs AG13–AG14J and AG25–AG29A)
15 The issuer of a financial instrument shall classify the instrument, or its component parts, on initial recognition as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset and an equity instrument.
16 When an issuer applies the definitions in paragraph 11 to determine whether a financial instrument is an equity instrument rather than a financial liability, the instrument is an equity instrument if, and only if, both conditions (a) and (b) below are met.
- The instrument includes no contractual obligation:
- to deliver cash
Appendix Application Guidance IAS 32 Financial Instruments: Presentation
This appendix is an integral part of the Standard.
AG1 this Application Guidance explains the application of particular aspects of the Standard.
AG2 The Standard does not deal with the recognition or measurement of financial instruments. Requirements about the recognition and measurement of financial assets and financial liabilities are set out in IFRS 9.
Definitions (paragraphs 11–14)
11-Definitions | 14-Definitions
Financial assets and financial liabilities
AG3 Currency (cash) is a financial asset because it represents the medium of exchange and is therefore the basis on which all transactions are measured and recognised in financial statements. A deposit of cash with a bank or similar financial institution is a financial asset because it … Read more
Appendix Application Guidance IAS 32 Financial instruments: Presentation
Presentation
Liabilities and equity (paragraphs 15–27)
No contractual obligation to deliver cash or another financial asset (paragraphs 17–20)
AG25 Preference shares may be issued with various rights. In determining whether a preference share is a financial liability or an equity instrument, an issuer assesses the particular rights attaching to the share to determine whether it exhibits the fundamental characteristic of a financial liability. For example, a preference share that provides for redemption on a specific date or at the option of the holder contains a financial liability because the issuer has an obligation to transfer financial assets to the holder of the share.
The potential inability of an issuer to satisfy an … Read more
Illustrative examples
These examples accompany, but are not part of, IFRS 32 Financial Instruments: Presentation
Accounting for contracts on equity instruments of an entity
IE1-Introduction
The following examples illustrate the application of paragraphs 15–27 and IFRS 39 Financial Instruments: Recognition and Measurement to the accounting for contracts on an entity’s own equity instruments (other than the financial instruments specified in paragraphs 16A and 16B or paragraphs 16C and 16D).… Read more
This example illustrates the journal entries for forward purchase contracts on an entity’s own shares that will be settled
- net in cash,
- net in shares, or
- by delivering cash in exchange for shares.
It also discusses the effect of settlement options (see (d) below).
To simplify the illustration, it is assumed that no dividends are paid on the underlying shares (ie the ‘carry return’ is zero) so that the present value of the forward price equals the spot price when the fair value of the forward contract is zero. The fair value of the forward has been computed as the difference between the market share price and the present value of the fixed forward price.
Assumptions:
Contract date 1 February … Read more
IE7 This example illustrates the journal entries for forward sale contracts on an entity’s own shares that will be settled
- net in cash,
- net in shares, or
- by receiving cash in exchange for shares.
It also discusses the effect of settlement options (see (d) below).
To simplify the illustration, it is assumed that no dividends are paid on the underlying shares (ie the ‘carry return’ is zero) so that the present value of the forward price equals the spot price when the fair value of the forward contract is zero. The fair value of the forward has been computed as the difference between the market share price and the present value of the fixed forward price.
Assumptions:
Contract date 1 … Read more
This example illustrates the journal entries for a purchased call option right on the entity’s own shares that will be settled (a) net in cash, (b) net in shares or (c) by delivering cash in exchange for the entity’s own shares. It also discusses the effect of settlement options (see (d) below):
Assumptions:
Contract date 1 February 20X2
Exercise date 31 January 20X3
Exercise right holder Reporting entity (Entity A)
Market price per share on 1 February 20X2 CU100
Market price per share on 31 December 20X2 CU104
Market price per share on 31 January 20X3 CU104
Fixed exercise price to be paid on 31 January 20X3 CU102
Number of shares under option contract 1,000
Fair value of option on … Read more
This example illustrates the journal entries for a written call option obligation on the entity’s own shares that will be settled (a) net in cash, (b) net in shares or (c) by delivering cash in exchange for shares. It also discusses the effect of settlement options (see (d) below).
Assumptions:
Contract date 1 February 20X2
Exercise date 31 January 20X3
Exercise right holder Counterparty (Entity B)
Market price per share on 1 February 20X2 CU100
Market price per share on 31 December 20X2 CU104
Market price per share on 31 January 20X3 CU104
Fixed exercise price to be paid on 31 January 20X3 CU102
Number of shares under option contract 1,000
Fair value of option on 1 February 20X2 CU5,000… Read more
IE22 This example illustrates the journal entries for a purchased put option on the entity’s own shares that will be settled (a) net in cash, (b) net in shares or (c) by delivering cash in exchange for shares. It also discusses the effect of settlement options (see (d) below).
Assumptions:
Contract date 1 February 20X2
Exercise date 31 January 20X3
Exercise right holder Reporting entity (Entity A)
Market price per share on 1 February 20X2 CU100
Market price per share on 31 December 20X2 CU95
Market price per share on 31 January 20X3 CU95
Fixed exercise price to be paid on 31 January 20X3 CU98
Number of shares under option contract 1,000
Fair value of option on 1 February 20X2 … Read more