Chapter 6 - Financial Instruments

Question 1

Financial Instrument

Answer 1

Any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument in another

Question 2

Financial Instruments falls into 3 categories

Answer 2

Financial assets
Financial Liabilities
Equity Instruments

Question 3

Financial Asset (1)

Answer 3

-Cash
- An equity instrument of another entity
- Contractual Right to receive cash or another financial asset from another entity
- Exchange financial assets or liabilities under potentially favourable conditions
- A contract that will or may be settled in the entity’s own equity instrument

Question 4

Financial asset example

Answer 4

> Cash
Derivatives (e.g share option)
Shares (as an investment)

Question 5

Financial Liability examples

Answer 5

• Trade Payables
• Bond issued
• Mandatorily redeemable preference shares
• Cumulative Irredeemable preference shares
• Forward standing at a loss

Question 6

Equity Instruments

Answer 6

A contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities

Question 7

Equity Instruments examples

Answer 7

• Own Ordinary shares
• Non cumulative irredeemable Preference shares

Question 8

Recognition

Answer 8

Recognised in the statement of financial position when the entity becomes party to the contractual provisions

Question 9

Financial Liabilities

Answer 9

• Any liabilty that is contractual obligation to deliver cash or another financial asset to another entity
• Exchange financil assets or liabilities under potentially unfavourable conditions
• A contact that will or may be settled in the entity’s own equity instruments