Financial instruments

Financial instruments

1. Financial asset (FA)

   • FV=> OCI : Only used when its an equity instrument & designated as such
   • Impairment: 1. FV=>P/L = not tested; 2. other 2 methods = must test;
   • Reclassification permitted
   • Cash, equity instrument of other entity, right to receive financial asset

2. Financial liability (FL)

   • Fair value: Through P/L or OCI; OR Amortised cost: use effective interest rate method
     • WHICH 1? - Depends on intention >If to receive contractual CFj = amortised cost
     • Transaction cost: 1. FV=> P/L = excl. from value; 2. FV=> OCI = Incl. in value; 3. Amortised cost=> Incl in value
   • Reclassification not permitted
   • Obligation to deliver cash or any other financial asset
   • Compound instrument = PV of Fin. Liab & balancing value E

3. Equity instrument (EI)

   • Residual interest in entity after deducting all its liabilities

4. A CONTRACT that gives rise to a FA for 1 entity and a FL or EI for another entity

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