1. IAS 32 Financial Instruments Presentation

3. If it is an equity instrument then :

4. A) it does not any contractual obligations (deliver cash or exchange asset / liability)

5. B) it is either a non derivative (with no contractual obligations) alternatively

8. An instrument is a liability when settlement depends on some uncertain events

10. Treasury shares- when an entity acquires or resells its own shares, this transaction represents a change of ownership and consequently no gain or loss arises.

12. Subsidiaries, joint ventures, associates etc.

13. Employees’ benefits

14. Insurance contracts. However, where such contracts are embedded derivatives (IAS 39) then apply IFRS 4 (recognition and measurement of financial instruments)

16. When settlement can be in cash / other financial instruments then watch for these: a) the contracts demand this type of settlements, b) when contract is not explicit then the traditional settlements like cash or other instruments will be in order, c) when it is the usual practice of the entity to quickly buy/sell to make short term gains or losses

17. When a contract is readily convertible in cash

19. A financial asset is cash, equities in another entity, a contractual right to receive cash or exchange with another asset or liability that is potentially favorable to the entity.

22. Fair value could be defined as a value that could be exchanged or liabilities settled between settled between willing and knowledgeable parties in an arm’s length transaction.

23. A puttable instrument is sellable for cash or any other financial asset or it is automatically transferred to the issuers on the occurrence of an uncertain event.

24. Contracts usually have clear economic consequences and the related parties have little discretionary power to avoid.

27. What is an equity instrument?- if an instrument entitles the holder to a pro-rata share after payment of all liabilities on liquidation. A pro-rata share is determined on dividing an entity’s assets into equal units of amounts and multiply the units held by the holder with the unit amount. The instrument is subordinate to all other instruments. A subordinate instrument has no priority over other claims to the assets. All subordinate instruments are puttable and the formula to calculate the redemption price is the same in that class.

30. Absence of contractual obligations With some exceptions, a financial liability differs from equity as it has contractual liabilities to deliver either cash or another financial asset. Substance rather the legal form governs the financial liability’s classification. Such as a preference share has a mandatory financial liability for redemption. When a holder of a financial instrument has the right to sell it back to the issuer for cash or another financial asset then it is a financial liability. If an entity does not have the right to avoid a liability by payment of cash or another asset then the obligation is a financial liability.

32. In a settlement, if an entity receives its own shares, then it is financial asset or a financial liability contract.

33. It is a financial liability when the entity has to buy back its own shares for cash.

37. No gain or loss arise on an entity’s own equity transactions.

38. All the treasury share related payments and receipts are accounted for under equity.

40. Any dividend distributions to holders of financial instruments along with any transaction costs shall be directly debited to equity net of any income tax benefits.

41. The classification of any instrument such as whether it is a financial liability or an equity instrument will determine whether the related costs such as interests etc. will be recognized in the profit and loss.

42. The issue costs of equities should be deducted from equity. These costs are typically legal, accounting etc.

43. If dividends are classified as an expense then they should be presented in the statement of comprehensive income.

45. A) there is a legal enforceable right of setoff

46. B) the entity wants to settle on a net basis or wants to realize asset and settle liability simultaneously

47. When transfer of an asset does not qualify for de-recognition, asset and liability set offs do not take place.

49. A) several instruments are used to emulate one instrument

50. B) financial assets and liabilities have the same primary risk exposure (example: assets and liabilities of a portfolio involve different counterparties)

51. C) financial assets are pledged

52. D) assets are set aside in trust

53. E) obligations arising under an insurance contract