Financial Instruments

@arunotes said:
In terms of financial instruments, it brokes into financial assets and financial liabilities. Under financial assets, there are debt instruments and equity instruments. How about under financial liabilities, it has what types of instruments??

May I know what is the difference between debt instruments and financial liabilities?

Thanks

Hi,

You are correct with regards to your understanding of financial assets. Financial liabilities are where a company has issued a debt instrument, giving rise to an to an obligation to pay cash and a financial liability.

If there is no obligation then the instrument will be classified as equity as it gives a share of the net assets, so when we issue shares in a company to raise cash.

Thanks

@arunotes said:
Also, for the equity instrument under financial assets, is it straight away use fair value through p&l, unless we go and do election while the financial assets are not held for trading??

How about if we didn’t elect and the financial assets under equity instrument is not held for trading? Is it will use fair value through P&L?

Thankss sir

Hi,

Yes, equity instruments will be at fair value through profit or loss unless we decide to classify it in a different fashion.

Thanks

@arunotes said:
1) As to under financial liabilities. there are 2 measurements which are fair value through P&L and amortised cost. How do we identify whether the item is FVTPL or amortised cost??
Is it follow the business model test and cash flow characteristics??

2) Do u mean under financial liabilities, it is also divided into debt instrument and equity instrument?

3) How do we differentiate whether the debt instrument and equity instrument are financial assets or financial liabilities?

Thanks

1) It is FVTPL if traded, otherwise it is at amortised cost. There is no business model test.

2) No, it is either one or the other, unless it is a convertible that has characteristics of both, when we then use split accounting.

3) Financial assets are when we buy the instrument. Financial liabilities/equity are when we issue the instrument.