Pas 32 Financial Instruments Presentation

PAS 32 FINANCIAL INSTRUMENTS PRESENTATION
-provides guidance in presenting financial instruments as liabilities or equity, in offsetting financial assets and financial liabilities, and
in classifying financial instruments, from the perspective of the issuer, into financial assets, financial liabilities and equity instruments.
-complements PFRS 9 Financial Instruments, which prescribes the recognition and measurement of financial assets, and financial
liabilities, and PFRS7 Financial Instruments Disclosures, which prescribes the disclosures for financial instruments.
- applies to all types of financial instruments and to commodity contracts that are not financial instruments but can be settled net,
except the following for which other Standards apply:
a. investments in subsidiaries, associates and joint ventures,
b. employer’s right and obligations under employee benefit plans and share-based payments
c. insurance contracts
FINANCIAL INSTRUMENTS
- Is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
FINANCIAL ASSET- is any asset that is:
a. Cash
b. An equity instruments of another entity;
c. A contractual right to receive cash or another financial asset from another equity
d. A contractual right to exchange financial instruments with another entity under conditions that are potentially favorable
e. A contract that will or may be settled in the entity’s own equity instruments and is not classified as the entity’s own
equity instrument.
FINANCIAL LIABILITY- is any liability that is:
a. A contractual obligation to deliver cash or another financial asset to another entity

b. A contractual obligation to exchange financial assets or financial liabilities with another entity under conditions that are
potentially unfavorable to the entity
c. A contract that will or may be settled in the entity’s own equity instruments and is not classified as the entity’s own
equity instrument.
EQUITY INSTRUMENT- is any contract that evidences a residual interest in the assets of an entity after deducting all of its liability.
- This definition reflects the basic accounting equation “Assets-Liability = Equity”

 Cash is the most basic financial instrument because it is the medium of exchange and the basis of measurement of all
financial statement elements.
 The term “financial instrument” encompasses both financial asset and financial liability but not the entity’s “own” equity
instrument. (Examples of an entity’s “own” equity shares, and stock options and warrants.
Examples of financial assets
a. Cash and cash equivalents (ex. Cash on hand, in banks, short-term money placements, and cash funds)
b. Receivables such as accounts, notes, loans, and finance lease receivables.
c. Investments in equity or debt instruments of other entities such as held for trading securities, investments in subsidiaries,
associates, joint ventures, investments in bonds, and derivative assets.
d. Sinking fund and other long term funds composed of cash and other financial assets.
The following are not financial assets:
a. Physical assets, such as inventories, biological assets, PPE and investment property
b. Intangible assets
c. Prepaid expenses and advance to suppliers
d. The entity’s own equity instrument (ex. Treasury shares)
Examples of financial liabilities:
a. Payable such as accounts, notes, loans and bond payable

b. Lease liabilities
c. Held for trading liabilities and derivative liabilities
d. Redeemable preference shares issued
e. Security deposits and returnable deposits.
The following are not financial liabilities:
a. Unearned revenues and warranty obligations that are to be settled by future delivery of goods or provision of services.
b. Taxes, SSS, PhilHealth, and PAG-IBIG payables
c. Constructive obligations
 Items (b) and (c) are not financial liabilities because these obligations do not arise from contracts.
PRESENTATION:
The issuer classifies a financial instrument, or its component parts, as a financial asset, a financial liability or an equity
instrument in accordance with the substance of the contract (rather than its legal form) and the definitions of a financial asset, a
financial liability and an equity instrument.
When determining whether a financial instrument is a financial liability or an equity instrument, the overriding consideration
is whether the instrument meets the definition of a financial liability.
Financial Liability Equity Instrument

- The entity has a contractual obligation to pay cash or - The entity has no obligation to pay cash or another
another financial asset or to exchange financial financial asset or to exchange financial instruments
instruments under potentially unfavorable condition. under potentially unfavorable condition.
A contract is not an equity instrument merely because it is to be settled in the entity’s own equity instruments. The following guidance
applies when a contract requires settlement in the entity’s own equity instruments:
Financial Liability Equity Instrument

-The contract requires the delivery of (a) a variable - The contract requires the delivery (receipt) of a fixed
member of the entity’s own equity instruments in number of the entity’s own equity instrument in
exchange for a fixed amount of cash or another exchange for a fixed amount of cash or another
financial asset or (b) a fixed number of the entity’s own financial asset.
equity instruments in exchange for a variable amount - Example: a share option that gives the holder a right to
of cash or another financial asset. buy a fixed number of the issuer’s shares for a fixed
- Examples: price.
a. Variable number for a fixed amount:
 A contract to deliver as many shares as are equal to the
value of a fixed amount of cash, say 100,000; or a
fixed number of units of a commodity, say 50 grams of
gold
b. Fixed number for a variable amount:
 A contract to deliver 1,000 own equity instruments in
exchange for an amount of cash equal to the value of
10 grams of gold.
 A contract to receive (rather that to deliver) is a financial asset.

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PAS 32 FINANCIAL INSTRUMENTS PRESENTATION

a. investments in subsidiaries, associates and joint ventures,

FINANCIAL ASSET- is any asset that is:

FINANCIAL LIABILITY- is any liability that is:

a. A contractual obligation to deliver cash or another financial asset to another entity

- This definition reflects the basic accounting equation “Assets-Liability = Equity”

Examples of financial assets

The following are not financial assets:

Examples of financial liabilities:

a. Payable such as accounts, notes, loans and bond payable

The following are not financial liabilities:

Financial Liability Equity Instrument

Financial Liability Equity Instrument

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