IAS 32 Financial Instruments: Presentation
An issuer classifies its instrument by the substance of the contractual arrangement rather than its legal label. A present contractual obligation to deliver cash generally indicates a liability. A compound instrument may need separate liability and equity components, with the liability measured first and the remainder allocated to equity. Offset a financial asset and liability only when the standard’s enforceable-right and settlement criteria are met.
Worked example
A $1,000 convertible bond qualifies as a compound instrument. If a comparable liability without the conversion feature is worth $920, recognise $920 as liability and $80 as equity initially.
Common mistake
Classifying mandatorily redeemable shares as equity only because they are legally called shares, or offsetting balances merely because they involve the same counterparty.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |