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My tutor said that “Financial Instrument is any contract that gives rise to financial asset for one entity and equity instruments for other entity.”
He also mentioned that “Financial assets are contractual right to receive cash.”I am now confused that if I buy shares of Company X so Company X will not be obliged to pay me cash in return so how it would be financial asset for me as I have not contracted Company X to give me cash, I know they will only give me benefit in form of dividend if they want to.
I mean to say is that for clap we need to hands. For recording, financial asset in our entity we should need financial liability for other entity.
I hope I could deliver my query well!Hi,
A financial asset is not just defined as the contractual right to receive cash. It is also defined as an equity instrument in an other entity, hence the investment in shares is a financial asset. See IAS 32 – https://www.iasplus.com/en/standards/ias/ias32
Thanks
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