Tax Management India. Com TMI - Tax Management India. Com
Case Laws Acts / Rules Notifications Circulars Tariff/ ITC HSN Forms Manuals Articles SMS News Highlights
        Home        
Extracts
Home List
← Previous Next →

Financial Instruments: Presentation

Ind AS - 032 - Rules - B. Indian Accounting Standards (Ind AS) - Companies (Indian Accounting Standards) Rules, 2015 - Ind AS - 032 - Indian Accounting Standard (Ind AS) 32 (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.) Objective 1 [Refer Appendix 1] 2 The objective of this Standard is to establish principles for presenting financial instruments as liabilities or equity and f .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ial liabilities in Ind AS 109, Financial Instruments, and for disclosing information about them in Ind AS 107, Financial Instruments: Disclosures. Scope 4 This Standard shall be applied by all entities to all types of financial instruments except: (a) those interests in subsidiaries, associates or joint ventures that are accounted for in accordance with Ind AS 110, Consolidated Financial Statements, Ind AS 27, Separate Financial Statements, or Ind AS 28, Investments in Associates and joint ventu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

efer Appendix 1] (d) insurance contracts as defined in Ind AS 104, Insurance Contracts. However, this Standard applies to derivatives that are embedded in insurance contracts if Ind AS 109 requires the entity to account for them separately. Moreover, an issuer shall apply this Standard to financial guarantee contracts if the issuer applies Ind AS 109 in recognising and measuring the contracts, but shall apply Ind AS 104 if the issuer elects, in accordance with paragraph 4(d) of Ind AS 104, to ap .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

derivatives that are embedded in these instruments (see Ind AS 109). (f) financial instruments, contracts and obligations under share-based payment transactions to which Ind AS 102, Share-based Payment, applies, except for (i) contracts within the scope of paragraphs 8-10 of this Standard, to which this Standard applies, (ii) paragraphs 33 and 34 of this Standard, which shall be applied to treasury shares purchased, sold, issued or cancelled in connection with employee share option plans, employ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

h the entity s expected purchase, sale or usage requirements. However, this Standard shall be applied to those contracts that an entity designates as measured at fair value through profit or loss in accordance with paragraph 2.5 of Ind AS 109, Financial Instruments. 9 There are various ways in which a contract to buy or sell a non-financial item can be settled net in cash or another financial instrument or by exchanging financial instruments. These include: (a) when the terms of the contract per .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing the contract before its exercise or lapse); (c) when, for similar contracts, the entity has a practice of taking delivery of the underlying and selling it within a short period after delivery for the purpose of generating a profit from short-term fluctuations in price or dealer s margin; and (d) when the non-financial item that is the subject of the contract is readily convertible to cash. A contract to which (b) or (c) applies is not entered into for the purpose of the receipt or delivery o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d. 10 A written option to buy or sell a non-financial item that can be settled net in cash or another financial instrument, or by exchanging financial instruments, in accordance with paragraph 9(a) or (d) is within the scope of this Standard. Such a contract cannot be entered into for the purpose of the receipt or delivery of the non-financial item in accordance with the entity s expected purchase, sale or usage requirements. Definitions (see also paragraphs AG3-AG23) 11 The following terms are .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e potentially favourable to the entity; or (d) a contract that will or may be settled in the entity s own equity instruments and is: (i) a non-derivative for which the entity is or may be obliged to receive a variable number of the entity s own equity instruments; or (ii) a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity s own equity instruments. For this purpose the entity s own equity instru .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iability that is: (a) a contractual obligation : (i) to deliver cash or another financial asset to another entity; or (ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity; or (b) a contract that will or may be settled in the entity s own equity instruments and is: (i) a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity s own equity instruments; or (ii) a de .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Apart from the aforesaid, the equity conversion option embedded in a convertible bond denominated in foreign currency to acquire a fixed number of the entity s own equity instruments is an equity instrument if the exercise price is fixed in any currency. Also, for these purposes the entity s own equity instruments do not include puttable financial instruments that are classified as equity instruments in accordance with paragraphs 16A and 16B, instruments that impose on the entity an obligation .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s 16C and 16D. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (See Ind AS 113, Fair Value Measurement.) A puttable instrument is a financial instrument that gives the holder the right to put the instrument back to the issuer for cash .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s firm commitment forecast transaction hedge effectiveness hedged item hedging instrument held for trading regular way purchase or sale transaction costs. 13 In this Standard, contract and contractual refer to an agreement between two or more parties that has clear economic consequences that the parties have little, if any, discretion to avoid, usually because the agreement is enforceable by law. Contracts, and thus financial instruments, may take a variety of forms and need not be in writing. 1 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nancial asset and an equity instrument. 16 When an issuer applies the definitions in paragraph 11 to determine whether a financial instrument is an equity instrument rather than a financial liability, the instrument is an equity instrument if, and only if, both conditions (a) and (b) below are met. (a) The instrument includes no contractual obligation: (i) to deliver cash or another financial asset to another entity; or (ii) to exchange financial assets or financial liabilities with another enti .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ns or warrants to acquire a fixed number of the entity s own equity instruments for a fixed amount of any currency are equity instruments if the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments. Apart from the aforesaid, the equity conversion option embedded in a convertible bond denominated in foreign currency to acquire a fixed number of the entity s own equity instruments is an equity instrument .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ivery of the issuer s own equity instruments, but does not meet conditions (a) and (b) above, is not an equity instrument. As an exception, an instrument that meets the definition of a financial liability is classified as an equity instrument if it has all the features and meets the conditions in paragraphs 16A and 16B or paragraphs 16C and 16D. Puttable instruments 16A A puttable financial instrument includes a contractual obligation for the issuer to repurchase or redeem that instrument for ca .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

g the entity s net assets on liquidation into units of equal amount; and (ii) multiplying that amount by the number of the units held by the financial instrument holder. (b) The instrument is in the class of instruments that is subordinate to all other classes of instruments. To be in such a class the instrument: (i) has no priority over other claims to the assets of the entity on liquidation, and (ii) does not need to be converted into another instrument before it is in the class of instruments .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, the instrument does not include any contractual obligation to deliver cash or another financial asset to another entity, or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity, and it is not a contract that will or may be settled in the entity s own equity instruments as set out in subparagraph (b) of the definition of a financial liability. (e) The total expected cash flows attributable to the instrument ov .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ws based substantially on the profit or loss, the change in the recognised net assets or the change in the fair value of the recognised and unrecognised net assets of the entity (excluding any effects of such instrument or contract) and (b) the effect of substantially restricting or fixing the residual return to the puttable instrument holders. For the purposes of applying this condition, the entity shall not consider nonfinancial contracts with a holder of an instrument described in paragraph 1 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

liquidation 16C Some financial instruments include a contractual obligation for the issuing entity to deliver to another entity a pro rata share of its net assets only on liquidation. The obligation arises because liquidation either is certain to occur and outside the control of the entity (for example, a limited life entity) or is uncertain to occur but is at the option of the instrument holder. As an exception to the definition of a financial liability, an instrument that includes such an obli .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l instrument holder. (b) The instrument is in the class of instruments that is subordinate to all other classes of instruments. To be in such a class the instrument: (i) has no priority over other claims to the assets of the entity on liquidation, and (ii) does not need to be converted into another instrument before it is in the class of instruments that is subordinate to all other classes of instruments. (c) All financial instruments in the class of instruments that is subordinate to all other .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nised and unrecognised net assets of the entity (excluding any effects of such instrument or contract) and (b) the effect of substantially restricting or fixing the residual return to the instrument holders. For the purposes of applying this condition, the entity shall not consider nonfinancial contracts with a holder of an instrument described in paragraph 16C that have contractual terms and conditions that are similar to the contractual terms and conditions of an equivalent contract that might .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

aragraphs 16C and 16D from the date when the instrument has all the features and meets the conditions set out in those paragraphs. An entity shall reclassify a financial instrument from the date when the instrument ceases to have all the features or meet all the conditions set out in those paragraphs. For example, if an entity redeems all its issued non-puttable instruments and any puttable instruments that remain outstanding have all the features and meet all the conditions in paragraphs 16A an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e measured at the instrument s fair value at the date of reclassification. The entity shall recognise in equity any difference between the carrying value of the equity instrument and the fair value of the financial liability at the date of reclassification. (b) It shall reclassify a financial liability as equity from the date when the instrument has all the features and meets the conditions set out in paragraphs 16A and 16B or paragraphs 16C and 16D. An equity instrument shall be measured at the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

set to the other party (the holder) or to exchange financial assets or financial liabilities with the holder under conditions that are potentially unfavourable to the issuer. Although the holder of an equity instrument may be entitled to receive a pro rata share of any dividends or other distributions of equity, the issuer does not have a contractual obligation to make such distributions because it cannot be required to deliver cash or another financial asset to another party. 18 The substance o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ble amount at a fixed or determinable future date, or gives the holder the right to require the issuer to redeem the instrument at or after a particular date for a fixed or determinable amount, is a financial liability. (b) a financial instrument that gives the holder the right to put it back to the issuer for cash or another financial asset (a puttable instrument ) is a financial liability, except for those instruments classified as equity instruments in accordance with paragraphs 16A and 16B o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cordance with paragraphs 16A and 16B or paragraphs 16C and 16D. For example, open-ended mutual funds, unit trusts, partnerships and some co-operative entities may provide their unitholders or members with a right to redeem their interests in the issuer at any time for cash, which results in the unitholders or members interests being classified as financial liabilities, except for those instruments classified as equity instruments in accordance with paragraphs 16A and 16B or paragraphs 16C and 16 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

If an entity does not have an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the obligation meets the definition of a financial liability, except for those instruments classified as equity instruments in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D. For example: (a) a restriction on the ability of an entity to satisfy a contractual obligation, such as lack of access to foreign currency or the need to obtain approval .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ancial asset may establish an obligation indirectly through its terms and conditions. For example: (a) a financial instrument may contain a non-financial obligation that must be settled if, and only if, the entity fails to make distributions or to redeem the instrument. If the entity can avoid a transfer of cash or another financial asset only by settling the non-financial obligation, the financial instrument is a financial liability. (b) a financial instrument is a financial liability if it pro .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

at is at least equal to the cash settlement option (see paragraph 21). Settlement in the entity s own equity instruments (paragraph 16(b)) 21 A contract is not an equity instrument solely because it may result in the receipt or delivery of the entity s own equity instruments. An entity may have a contractual right or obligation to receive or deliver a number of its own shares or other equity instruments that varies so that the fair value of the entity s own equity instruments to be received or d .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ract to deliver as many of the entity s own equity instruments as are equal in value to the value of 100 ounces of gold. Such a contract is a financial liability of the entity even though the entity must or can settle it by delivering its own equity instruments. It is not an equity instrument because the entity uses a variable number of its own equity instruments as a means to settle the contract. Accordingly, the contract does not evidence a residual interest in the entity s assets after deduct .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

air value of a contract arising from variations in market interest rates that do not affect the amount of cash or other financial assets to be paid or received, or the number of equity instruments to be received or delivered, on settlement of the contract do not preclude the contract from being an equity instrument. Any consideration received (such as the premium received for a written option or warrant on the entity s own shares) is added directly to equity. Any consideration paid (such as the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

share of the net assets of the entity only on liquidation with all the features and meeting the conditions described in paragraphs 16C and 16D, the contract is a financial asset or a financial liability. This includes a contract that will be settled by the entity receiving or delivering a fixed number of such instruments in exchange for a fixed amount of cash or another financial asset. 23 With the exception of the circumstances described in paragraphs 16A and 16B or paragraphs 16C and 16D, a c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

for cash. The financial liability is recognised initially at the present value of the redemption amount, and is reclassified from equity. Subsequently, the financial liability is measured in accordance with Ind AS 109. If the contract expires without delivery, the carrying amount of the financial liability is reclassified to equity. An entity s contractual obligation to purchase its own equity instruments gives rise to a financial liability for the present value of the redemption amount even if .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ty to deliver 100 of its own equity instruments in return for an amount of cash calculated to equal the value of 100 ounces of gold. Contingent settlement provisions 25 A financial instrument may require the entity to deliver cash or another financial asset, or otherwise to settle it in such a way that it would be a financial liability, in the event of the occurrence or non-occurrence of uncertain future events (or on the outcome of uncertain circumstances) that are beyond the control of both th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e contingent settlement provision that could require settlement in cash or another financial asset (or otherwise in such a way that it would be a financial liability) is not genuine; (b) the issuer can be required to settle the obligation in cash or another financial asset (or otherwise to settle it in such a way that it would be a financial liability) only in the event of liquidation of the issuer; or (c) the instrument has all the features and meets the conditions in paragraphs 16A and 16B. Se .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tle net in cash or by exchanging its own shares for cash. Similarly, some contracts to buy or sell a non-financial item in exchange for the entity s own equity instruments are within the scope of this Standard because they can be settled either by delivery of the non-financial item or net in cash or another financial instrument (see paragraphs 8-10). Such contracts are financial assets or financial liabilities and not equity instruments. Compound financial instruments (see also paragraphs AG30- .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r of the instrument to convert it into an equity instrument of the entity. For example, a bond or similar instrument convertible by the holder into a fixed number of ordinary shares of the entity is a compound financial instrument. From the perspective of the entity, such an instrument comprises two components: a financial liability (a contractual arrangement to deliver cash or another financial asset) and an equity instrument (a call option granting the holder the right, for a specified period .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

equity components of a convertible instrument is not revised as a result of a change in the likelihood that a conversion option will be exercised, even when exercise of the option may appear to have become economically advantageous to some holders. Holders may not always act in the way that might be expected because, for example, the tax consequences resulting from conversion may differ among holders. Furthermore, the likelihood of conversion will change from time to time. The entity s contractu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

components, the equity component is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the liability component. The value of any derivative features (such as a call option) embedded in the compound financial instrument other than the equity component (such as an equity conversion option) is included in the liability component. The sum of the carrying amounts assigned to the liability and equity components on initial .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d equity component. The carrying amount of the equity instrument represented by the option to convert the instrument into ordinary shares is then determined by deducting the fair value of the financial liability from the fair value of the compound financial instrument as a whole. Treasury shares (see also paragraph AG36) 33 If an entity reacquires its own equity instruments, those instruments ( treasury shares ) shall be deducted from equity. No gain or loss shall be recognised in profit or loss .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ated Party Disclosures, if the entity reacquires its own equity instruments from related parties. Interest, dividends, losses and gains (see also paragraph AG37) 35 Interest, dividends, losses and gains relating to a financial instrument or a component that is a financial liability shall be recognised as income or expense in profit or loss. Distributions to holders of an equity instrument shall be recognised by the entity directly in equity. Transaction costs of an equity transaction shall be ac .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

res wholly recognised as liabilities are recognised as expenses in the same way as interest on a bond. Similarly, gains and losses associated with redemptions or refinancings of financial liabilities are recognised in profit or loss, whereas redemptions or refinancings of equity instruments are recognised as changes in equity. Changes in the fair value of an equity instrument are not recognised in the financial statements. 37 An entity typically incurs various costs in issuing or acquiring its o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

saction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components of the instrument in proportion to the allocation of proceeds. Transaction costs that relate jointly to more than one transaction (for example, costs of a concurrent offering of some shares and a stock exchange listing of other shares) are allocated to those transactions using a basis of allocation that is rational and consistent with similar transactions. 39 The amount .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d dividends with respect to matters such as tax deductibility, it is desirable to disclose them separately in the statement of profit and loss. Disclosures of the tax effects are made in accordance with Ind AS 12. 41 Gains and losses related to changes in the carrying amount of a financial liability are recognised as income or expense in profit or loss even when they relate to an instrument that includes a right to the residual interest in the assets of the entity in exchange for cash or another .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ently has a legally enforceable right to set off the recognised amounts; and (b) intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. In accounting for a transfer of a financial asset that does not qualify for derecognition, the entity shall not offset the transferred asset and the associated liability (see Ind AS 109, paragraph 3.2.22). 43 This Standard requires the presentation of financial assets and financial liabilities on a net basis whe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nformation required in paragraphs 13B-13E of Ind AS 107 for recognised financial instruments that are within the scope of paragraph 13A of Ind AS 107. 44 Offsetting a recognised financial asset and a recognised financial liability and presenting the net amount differs from the derecognition of a financial asset or a financial liability. Although offsetting does not give rise to recognition of a gain or loss, the derecognition of a financial instrument not only results in the removal of the previ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the three parties that clearly establishes the debtor s right of set-off. Because the right of set-off is a legal right, the conditions supporting the right may vary from one legal jurisdiction to another and the laws applicable to the relationships between the parties need to be considered. 46 The existence of an enforceable right to set off a financial asset and a financial liability affects the rights and obligations associated with a financial asset and a financial liability and may affect .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ash flows, as well as the risks to which those cash flows are exposed. An intention by one or both parties to settle on a net basis without the legal right to do so is not sufficient to justify offsetting because the rights and obligations associated with the individual financial asset and financial liability remain unaltered. 47 An entity s intentions with respect to settlement of particular assets and liabilities may be influenced by its normal business practices, the requirements of the finan .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sed financial market or a face-to-face exchange. In these circumstances the cash flows are, in effect, equivalent to a single net amount and there is no exposure to credit or liquidity risk. In other circumstances, an entity may settle two instruments by receiving and paying separate amounts, becoming exposed to credit risk for the full amount of the asset or liquidity risk for the full amount of the liability. Such risk exposures may be significant even though relatively brief. Accordingly, rea .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

primary risk exposure (for example, assets and liabilities within a portfolio of forward contracts or other derivative instruments) but involve different counterparties; (c) financial or other assets are pledged as collateral for non-recourse financial liabilities; (d) financial assets are set aside in trust by a debtor for the purpose of discharging an obligation without those assets having been accepted by the creditor in settlement of the obligation (for example, a sinking fund arrangement); .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

any one contract. These arrangements are commonly used by financial institutions to provide protection against loss in the event of bankruptcy or other circumstances that result in a counterparty being unable to meet its obligations. A master netting arrangement commonly creates a right of set-off that becomes enforceable and affects the realisation or settlement of individual financial assets and financial liabilities only following a specified event of default or in other circumstances not ex .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

97F * 97G * 97H * 97I * 97J * 97K * 97L * 97M * 97N * 97O * 97P * 97Q As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers, paragraph AG21 is amended. An entity shall apply those amendments when it applies Ind AS 115.] Appendix A Application Guidance Ind AS 32 This appendix is an integral part of the Ind AS. AG1 This Application Guidance explains the application of particular aspects of the Standard. AG2 The Standard does not deal with the recognition or measurement .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

because it represents the contractual right of the depositor to obtain cash from the institution or to draw a cheque or similar instrument against the balance in favour of a creditor in payment of a financial liability. AG4 Common examples of financial assets representing a contractual right to receive cash in the future and corresponding financial liabilities representing a contractual obligation to deliver cash in the future are: (a) trade accounts receivable and payable; (b) notes receivable .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d the issuer the contractual obligation to deliver government bonds, not cash. The bonds are financial assets because they represent obligations of the issuing government to pay cash. The note is, therefore, a financial asset of the note holder and a financial liability of the note issuer. AG6 Perpetual debt instruments (such as perpetual bonds, debentures and capital notes) normally provide the holder with the contractual right to receive payments on account of interest at fixed dates extending .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

umes a contractual obligation to make a stream of future interest payments having a fair value (present value) of ₹ 1,000 on initial recognition. The holder and issuer of the instrument have a financial asset and a financial liability, respectively. AG7 A contractual right or contractual obligation to receive, deliver or exchange financial instruments is itself a financial instrument. A chain of contractual rights or contractual obligations meets the definition of a financial instrument if .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

efaults. The contractual right and obligation exist because of a past transaction or event (assumption of the guarantee), even though the lender s ability to exercise its right and the requirement for the guarantor to perform under its obligation are both contingent on a future act of default by the borrower. A contingent right and obligation meet the definition of a financial asset and a financial liability, even though such assets and liabilities are not always recognised in the financial stat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

asset itself. An operating lease, on the other hand, is regarded as primarily an uncompleted contract committing the lessor to provide the use of an asset in future periods in exchange for consideration similar to a fee for a service. The lessor continues to account for the leased asset itself rather than any amount receivable in the future under the contract. Accordingly, a finance lease is regarded as a financial instrument and an operating lease is not regarded as a financial instrument (exc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he future economic benefit is the receipt of goods or services, rather than the right to receive cash or another financial asset, are not financial assets. Similarly, items such as deferred revenue and most warranty obligations are not financial liabilities because the outflow of economic benefits associated with them is the delivery of goods and services rather than a contractual obligation to pay cash or another financial asset. AG12 Liabilities or assets that are not contractual (such as inco .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e paragraphs 16A and 16B), some instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation (see paragraphs 16C and 16D), some types of preference shares (see paragraphs AG25 and AG26), and warrants or written call options that allow the holder to subscribe for or purchase a fixed number of non-puttable ordinary shares in the issuing entity in exchange for a fixed amount of cash or another financial asset. A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lue of the redemption amount (see paragraph AG27(a)). An issuer of non-puttable ordinary shares assumes a liability when it formally acts to make a distribution and becomes legally obliged to the shareholders to do so. This may be the case following the declaration of a dividend or when the entity is being wound up and any assets remaining after the satisfaction of liabilities become distributable to shareholders. AG14 A purchased call option or other similar contract acquired by an entity that .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lass of instruments that is subordinate to all other classes. AG14B When determining whether an instrument is in the subordinate class, an entity evaluates the instrument s claim on liquidation as if it were to liquidate on the date when it classifies the instrument. An entity shall reassess the classification if there is a change in relevant circumstances. For example, if the entity issues or redeems another financial instrument, this may affect whether the instrument in question is in the clas .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

net assets of the entity do not have the same right on liquidation. AG14D If an entity has only one class of financial instruments, that class shall be treated as if it were subordinate to all other classes. Total expected cash flows attributable to the instrument over the life of the instrument (paragraph 16A(e)) AG14E The total expected cash flows of the instrument over the life of the instrument must be substantially based on the profit or loss, change in the recognised net assets or fair val .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ntity only on liquidation may enter into transactions with the entity in a role other than that of an owner. For example, an instrument holder may also be an employee of the entity. Only the cash flows and the contractual terms and conditions of the instrument that relate to the instrument holder as an owner of the entity shall be considered when assessing whether the instrument should be classified as equity under paragraph 16A or paragraph 16C. AG14G An example is a limited partnership that ha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assessing whether the contractual terms of the limited partnership instruments and the general partnership instruments are identical. AG14H Another example is a profit or loss sharing arrangement that allocates profit or loss to the instrument holders on the basis of services rendered or business generated during the current and previous years. Such arrangements are transactions with instrument holders in their role as non-owners and should not be considered when assessing the features listed i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

as a non-owner) and the issuing entity must be similar to an equivalent transaction that might occur between a non-instrument holder and the issuing entity. No other financial instrument or contract with total cash flows that substantially fixes or restricts the residual return to the instrument holder (paragraphs 16B and 16D) AG14J A condition for classifying as equity a financial instrument that otherwise meets the criteria in paragraph 16A or paragraph 16C is that the entity has no other fina .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ragraph 16C from being classified as equity: (a) instruments with total cash flows substantially based on specific assets of the entity. (b) instruments with total cash flows based on a percentage of revenue. (c) contracts designed to reward individual employees for services rendered to the entity. (d) contracts requiring the payment of an insignificant percentage of profit for services rendered or goods provided. Derivative financial instruments AG15 Financial instruments include primary instru .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ks inherent in an underlying primary financial instrument. On inception, derivative financial instruments give one party a contractual right to exchange financial assets or financial liabilities with another party under conditions that are potentially favourable, or a contractual obligation to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable. However, they generally1 do not result in a transfer of the underlying primary fina .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

than an entity s own equity instruments) gives the holder a right to obtain potential future economic benefits associated with changes in the fair value of the financial instrument underlying the contract. Conversely, the writer of an option assumes an obligation to forgo potential future economic benefits or bear potential losses of economic benefits associated with changes in the fair value of the underlying financial instrument. The contractual right of the holder and obligation of the writer .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nancial asset under potentially favourable conditions and the writer s obligation to exchange the financial asset under potentially unfavourable conditions are distinct from the underlying financial asset to be exchanged upon exercise of the option. The nature of the holder s right and of the writer s obligation are not affected by the likelihood that the option will be exercised. AG18 Another example of a derivative financial instrument is a forward contract to be settled in six months time in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

0,000, the conditions will be favourable to the purchaser and unfavourable to the seller; if the market price falls below ₹ 1,000,000, the effect will be the opposite. The purchaser has a contractual right (a financial asset) similar to the right under a call option held and a contractual obligation (a financial liability) similar to the obligation under a put option written; the seller has a contractual right (a financial asset) similar to the right under a put option held and a contractu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rcise it. AG19 Many other types of derivative instruments embody a right or obligation to make a future exchange, including interest rate and currency swaps, interest rate caps, collars and floors, loan commitments, note issuance facilities and letters of credit. An interest rate swap contract may be viewed as a variation of a forward contract in which the parties agree to make a series of future exchanges of cash amounts, one amount calculated with reference to a floating interest rate and the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a financial instrument because the contractual right of one party to receive a non-financial asset or service and the corresponding obligation of the other party do not establish a present right or obligation of either party to receive, deliver or exchange a financial asset. For example, contracts that provide for settlement only by the receipt or delivery of a non-financial item (eg an option, futures or forward contract on silver) are not financial instruments. Many commodity contracts are of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t or sold and the possibility of negotiating a cash settlement of the obligation to receive or deliver the commodity do not alter the fundamental character of the contract in a way that creates a financial instrument. Nevertheless, some contracts to buy or sell non-financial items that can be settled net or by exchanging financial instruments, or in which the non-financial item is readily convertible to cash, are within the scope of the Standard as if they were financial instruments (see paragra .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

through the physical receipt or delivery of a commodity. They specify settlement through cash payments that are determined according to a formula in the contract, rather than through payment of fixed amounts. For example, the principal amount of a bond may be calculated by applying the market price of oil prevailing at the maturity of the bond to a fixed quantity of oil. The principal is indexed by reference to a commodity price, but is settled only in cash. Such a contract constitutes a financi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n to exchange the principal amount for a fixed quantity of oil. The desirability of exercising this option will vary from time to time depending on the fair value of oil relative to the exchange ratio of cash for oil (the exchange price) inherent in the bond. The intentions of the bondholder concerning the exercise of the option do not affect the substance of the component assets. The financial asset of the holder and the financial liability of the issuer make the bond a financial instrument, re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

aracteristic of a financial liability. For example, a preference share that provides for redemption on a specific date or at the option of the holder contains a financial liability because the issuer has an obligation to transfer financial assets to the holder of the share. The potential inability of an issuer to satisfy an obligation to redeem a preference share when contractually required to do so, whether because of a lack of funds, a statutory restriction or insufficient profits or reserves, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

AG26 When preference shares are non-redeemable, the appropriate classification is determined by the other rights that attach to them. Classification is based on an assessment of the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. When distributions to holders of the preference shares, whether cumulative or non-cumulative, are at the discretion of the issuer, the shares are equity instruments. The classification of a preference sha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

period; or (f) an ability or inability of the issuer to influence the amount of its profit or loss for the period. Settlement in the entity s own equity instruments (paragraphs 21-24) AG27 The following examples illustrate how to classify different types of contracts on an entity s own equity instruments: (a) A contract that will be settled by the entity receiving or delivering a fixed number of its own shares for no future consideration, or exchanging a fixed number of its own shares for a fix .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ixed or determinable date or on demand, the entity also recognises a financial liability for the present value of the redemption amount (with the exception of instruments that have all the features and meet the conditions in paragraphs 16A and 16B or paragraphs 16C and 16D). One example is an entity s obligation under a forward contract to repurchase a fixed number of its own shares for a fixed amount of cash. (b) An entity s obligation to purchase its own shares for cash gives rise to a financi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in cash or another financial asset is a financial asset or financial liability even if the amount of cash or another financial asset that will be received or delivered is based on changes in the market price of the entity s own equity (except as stated in paragraphs 16A and 16B or paragraphs 16C and 16D). One example is a net cash-settled share option. (d) A contract that will be settled in a variable number of the entity s own shares whose value equals a fixed amount or an amount based on chan .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n a fixed number of the entity s own shares, but the rights attaching to those shares will be varied so that the settlement value equals a fixed amount or an amount based on changes in an underlying variable, is a financial asset or a financial liability. Contingent settlement provisions (paragraph 25) AG28 Paragraph 25 requires that if a part of a contingent settlement provision that could require settlement in cash or another financial asset (or in another way that would result in the instrume .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ol of the entity, but if these circumstances have no genuine possibility of occurring, classification as an equity instrument is appropriate. Treatment in consolidated financial statements AG29 In consolidated financial statements, an entity presents non-controlling interests- ie the interests of other parties in the equity and income of its subsidiaries-in accordance with Ind AS 1 and Ind AS 110. When classifying a financial instrument (or a component of it) in consolidated financial statements .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the group may not have discretion over distributions or redemption. Although the subsidiary may appropriately classify the instrument without regard to these additional terms in its individual financial statements, the effect of other agreements between members of the group and the holders of the instrument is considered in order to ensure that consolidated financial statements reflect the contracts and transactions entered into by the group as a whole. To the extent that there is such an oblig .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assification of an instrument. This exception is not extended to the classification of noncontrolling interests in the consolidated financial statements. Therefore, instruments classified as equity instruments in accordance with either paragraphs 16A and 16B or paragraphs 16C and 16D in the separate or individual financial statements that are non-controlling interests are classified as liabilities in the consolidated financial statements of the group. Compound financial instruments (paragraphs 2 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the issuer, and without any other embedded derivative features. Paragraph 28 requires the issuer of such a financial instrument to present the liability component and the equity component separately in the balance sheet, as follows: (a) The issuer s obligation to make scheduled payments of interest and principal is a financial liability that exists as long as the instrument is not converted. On initial recognition, the fair value of the liability component is the present value of the contractu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he entity derecognises the liability component and recognises it as equity. The original equity component remains as equity (although it may be transferred from one line item within equity to another). There is no gain or loss on conversion at maturity. AG33 When an entity extinguishes a convertible instrument before maturity through an early redemption or repurchase in which the original conversion privileges are unchanged, the entity allocates the consideration paid and any transaction costs f .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

or loss is treated in accordance with accounting principles applicable to the related component, as follows: (a) the amount of gain or loss relating to the liability component is recognised in profit or loss; and (b) the amount of consideration relating to the equity component is recognised in equity. AG35 An entity may amend the terms of a convertible instrument to induce early conversion, for example by offering a more favourable conversion ratio or paying other additional consideration in the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

for which they are reacquired. Paragraph 33 requires an entity that reacquires its own equity instruments to deduct those equity instruments from equity. However, when an entity holds its own equity on behalf of others, eg a financial institution holding its own equity on behalf of a client, there is an agency relationship and as a result those holdings are not included in the entity s balance sheet. Interest, dividends, losses and gains (paragraphs 35-41) AG37 The following example illustrates .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nse. Any dividends paid relate to the equity component and, accordingly, are recognised as a distribution of profit or loss. A similar treatment would apply if the redemption was not mandatory but at the option of the holder, or if the share was mandatorily convertible into a variable number of ordinary shares calculated to equal a fixed amount or an amount based on changes in an underlying variable (eg commodity). However, if any unpaid dividends are added to the redemption amount, the entire i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nt, such as the default, insolvency or bankruptcy of one of the counterparties). Even if the right of set-off is not contingent on a future event, it may only be legally enforceable in the normal course of business, or in the event of default, or in the event of insolvency or bankruptcy, of one or all of the counterparties. AG38B To meet the criterion in paragraph 42(a), an entity must currently have a legally enforceable right of set-off. This means that the right of set-off: (a) must not be co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tly, it cannot be assumed that the right of set-off is automatically available outside of the normal course of business. For example, the bankruptcy or insolvency laws of a jurisdiction may prohibit, or restrict, the right of set-off in the event of bankruptcy or insolvency in some circumstances. AG38D The laws applicable to the relationships between the parties (for example, contractual provisions, the laws governing the contract, or the default, insolvency or bankruptcy laws applicable to the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o settle on a net basis or to realise the asset and settle the liability simultaneously. Although the entity may have a right to settle net, it may still realise the asset and settle the liability separately. AG38F If an entity can settle amounts in a manner such that the outcome is, in effect, equivalent to net settlement, the entity will meet the net settlement criterion in paragraph 42(b). This will occur if, and only if, the gross settlement mechanism has features that eliminate or result in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

committed to fulfill the settlement obligation; (c) there is no potential for the cash flows arising from the assets and liabilities to change once they have been submitted for processing (unless the processing fails-see (d) below); (d) assets and liabilities that are collateralised with securities will be settled on a securities transfer or similar system (for example, delivery versus payment), so that if the transfer of securities fails, the processing of the related receivable or payable for .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the parties, and it is virtually certain that the intraday credit facility will be honoured if called upon. AG39 The Standard does not provide special treatment for so-called synthetic instruments , which are groups of separate financial instruments acquired and held to emulate the characteristics of another instrument. For example, a floating rate long-term debt combined with an interest rate swap that involves receiving floating payments and making fixed payments synthesises a fixed rate lon .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ented in an entity s balance sheet on a net basis unless they meet the criteria for offsetting in paragraph 42. Appendix B References to matters contained in other Indian Accounting Standards This Appendix is an integral part of the Ind AS. This appendix lists the appendices which are part of other Indian Accounting Standards and makes reference to Ind AS 32, . 5[1. Appendix D, Service Concession Arrangements contained in Ind AS 115, Revenue from Contracts with Customers.] 2. Appendix D, Extingu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

exception to the definition of financial liability in paragraph 11 (b) (ii), Ind AS 32 considers the equity conversion option embedded in a convertible bond denominated in foreign currency to acquire a fixed number of entity s own equity instruments is considered an equity instrument if the exercise price is fixed in any currency. This exception is not provided in IAS 32. 6[2. Paragraphs 96 to 97P related to Transitional Provisions and Effective date given in IAS 32 have not been given in Ind A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s used, as used in existing laws e.g.,the term balance sheet is used instead of Statement of financial position and Statement of profit and loss is used instead of Statement of comprehensive income . 4. Requirements regarding presentation of dividends classified as an expense in the separate income statement, where separate income statement is presented, have been deleted. This change is consequential to the removal of option regarding two statement approach in Ind AS 1. Ind AS 1 requires that t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

art of IAS 32 have not been included in Ind AS 32: (i) Reference to Example 7 of Illustrative Examples in paragraph 18(b) (ii) Reference to Example 8 of Illustrative Example in paragraph 18(b) (iii) Reference to Example 9-12 of Illustrative Example given in heading above paragraph 28 ******************** Notes:- 1. Substituted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, " AG21 Except as required by Ind AS 115, Revenue from Contracts with Customers, a contract .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

Discussion Forum
what is new what is new
 


|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version