TMI BlogFinancial Instruments: PresentationX X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ventures. However, in some cases, Ind AS 110, Ind AS 27 or Ind AS 28 require or permit an entity to account for an interest in a subsidiary, associate or joint venture using Ind AS 109; in those cases, entities shall apply the requirements of this Standard. Entities shall also apply this Standard to all derivatives linked to interests in subsidiaries, associates or joint ventures. (b) employers rights and obligations under employee benefit plans, to which Ind AS 19, Employee Benefits, applies. (c) [Refer 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts; (b) when the ability to settle net in cash or another financial instrument, or by exchanging financial instruments, is not explicit in the terms of the contract, but the entity has a practice of settling similar contracts net in cash or another financial instrument, or by exchanging financial instruments (whether with the counterparty, by entering into offsetting contracts or by selling 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 of the non-financial item in accordance with the entity s expected purchase, sale or usage requirements, and, accordingly, is within the scope of this Standard. Other contracts to which paragraph 8 applies are evaluated to determine whether they were entered into and continue to be held for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 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, rights, options 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 if the exercise price is fixed in any currency. Also, for these purposes the entity s own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Presentation Liabilities and equity (see also paragraphs AG13 AG14J and AG25 AG29A) 15 The issuer of a financial instrument shall classify the instrument, or its component parts, on initial recognition as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial 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 entity under conditions that are potentially unfavourable to the issuer. (b) If the instrument will or may be settled in the issuer s own equity instruments, it is: (i) a non-derivative that includes no contractual obligation for the issuer to deliver a variable number of its own e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trument 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 classes of instruments have identical features. For example, they must all be puttable, and the formula or other method used to calculate the repurchase or redemption price is the same for all instruments in that class. (d) Apart from the contractual obligation for the issuer to repurchase or redeem the instrument for cash or another financial asset, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net assets are those assets that remain after deducting all other claims on its assets. A pro rata share is determined by: (i) dividing the net assets of the entity 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 that is subordinate to all other classes of instruments. (c) All financial instruments in the class of instruments that is subordinate to all other classes of instruments must have an identical contractual obligation for the issuing entity to deliver a pro rata share of its net assets on liquidation. 16D For an instrument to be classified as an equity instrument, in addition to the instrument having all the above features, the issuer must have no other financial instrument or contract that has: (a) total cash flows based substanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 carrying value of the financial liability at the date of reclassification. No contractual obligation to deliver cash or another financial asset (paragraph 16(a)) 17 With the exception of the circumstances described in paragraphs 16A and 16B or paragraphs 16C and 16D, a critical feature in differentiating a financial liability from an equity instrument is the existence of a contractual obligation of one party to the financial instrument (the issuer) either to deliver cash or another financial asset 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 financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal disclosure to show that total members interests comprise items such as reserves that meet the definition of equity and puttable instruments that do not. 19 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 for payment from a regulatory authority, does not negate the entity s contractual obligation or the holder s contractual right under the instrument. (b) a contractual obligation that is conditional on a counter party exercising its right to redeem is a financial liability because the entity does not have the unconditional right to avoid delivering cash or another financial asset. 20 A financial instrument that does not explicitly establish a contractual obligation to deliver cash or another financial asset may establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, the contract does not evidence a residual interest in the entity s assets after deducting all of its liabilities. 22 Except as stated in paragraph 22A, a contract that will be settled by the entity (receiving or) delivering a fixed number of its own equity instruments in exchange for a fixed amount of cash or another financial asset is an equity instrument. For example, an issued share option that gives the counter party a right to buy a fixed number of the entity s shares for a fixed price or for a fixed stated principal amount of a bond is an equity instrument. Changes in the fair 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 premium paid for a purchased option) is deducted directly from equity. Changes in the fair value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the entity 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 the issuer and the holder of the instrument, such as a change in a stock market index, consumer price index, interest rate or taxation requirements, or the issuer s future revenues, net income or debt-to-equity ratio. The issuer of such an instrument does not have the unconditional right to avoid delivering cash or another financial asset (or otherwise to settle it in such a way that it would be a financial liability). Therefore, it is a financial liability of the issuer unless: (a) the part of the 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 genu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ordinary shares of the entity). The economic effect of issuing such an instrument is substantially the same as issuing simultaneously a debt instrument with an early settlement provision and warrants to purchase ordinary shares, or issuing a debt instrument with detachable share purchase warrants. Accordingly, in all cases, the entity presents the liability and equity components separately in its balance sheet. 30 Classification of the liability and 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 contractual obligation to make future payments remains outstanding until it is extinguished through conversion, maturity of the instrument or some other transaction. 31 Ind AS 109 deals with the measurement of financial assets and financial liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds, 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 accounted for as a deduction from equity. 35A Income tax relating to distributions to holders of an equity instrument and to transaction costs of an equity transaction shall be accounted for in accordance with Ind AS 12, Income Taxes. 36 The classification of a financial instrument as a financial liability or an equity instrument determines whether interest, dividends, losses and gains relating to that instrument are recognised as income or expense in profit or loss. Thus, dividend payments on shares 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 reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss when it is relevant in explaining the entity s performance. Offsetting a financial asset and a financial liability (see also paragraphs AG38A-AG 38F and AG39) 42 A financial asset and a financial liability shall be offset and the net amount presented in the balance sheet when, and only when, an entity: (a) currently 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 when doing so reflects an entity s expected future cash flows from settling two or more separate financial instruments. When an entity has the right to receive or pay a single net amount and intends to do so, it has, in effect, only a single financial asset or financial liability. In other circumstances, financial assets and financial liabilities are pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociated 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 financial markets and other circumstances that may limit the ability to settle net or to settle simultaneously. When an entity has a right of set-off, but does not intend to settle net or to realise the asset and settle the liability simultaneously, the effect of the right on the entity s credit risk exposure is disclosed in accordance with paragraph 36 of Ind AS 107. 48 Simultaneous settlement of two financial instruments may occur through, for example, the operation of a clearing house in an organised 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n an entity s exposure to credit risk is disclosed in accordance with paragraph 36 of Ind AS 107. 51-95 [Refer Appendix 1] 3 [Effective date and transition 96 * 96A * 96B * 96C * 97 * 97A * 97B * 97C * 97D * 97E * 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.] 7 [ 97R Omitted* (*Refer Appendix 1) 97S Ind AS 116 amended paragraphs AG9 and AG10. An entity shall apply those amendments when it applies Ind AS 116. ] Appendix A Application Guidance Ind AS 32 Financial Instruments: Presentation 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 of financial instruments. Requirements about the recognition and measurement of financial assets and financial liabilitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued, the issuer assumes 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 it will ultimately lead to the receipt or payment of cash or to the acquisition or issue of an equity instrument. AG8 The ability to exercise a contractual right or the requirement to satisfy a contractual obligation may be absolute, or it may be contingent on the occurrence of a future event. For example, a financial guarantee is a contractual right of the lender to receive cash from the guarantor, and a corresponding contractual obligation of the guarantor to pay the lender, if the borrower defaults. 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 ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not financial liabilities or financial assets. Accounting for income taxes is dealt with in Ind AS 12. Similarly, constructive obligations, as defined in Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets, do not arise from contracts and are not financial liabilities. Equity instruments AG13 Examples of equity instruments include non-puttable ordinary shares, some puttable instruments (see 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. An entity s obligation to issue or purchase a fixed number of its own equity instruments in exchange for a fixed amount of cash or another financial asset is an equity instrument of the entity (except as stated in paragraph 22A). However, if such a contract contains an obligation f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 value of the recognised and unrecognised net assets of the entity over the life of the instrument. Profit or loss and the change in the recognised net assets shall be measured in accordance with relevant Ind ASs. Transactions entered into by an instrument holder other than as owner of the entity (paragraphs 16A and 16C) AG14F The holder of a puttable financial instrument or an instrument that imposes on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity 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 considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he entity and (b) the effect of substantially restricting or fixing the residual return. The following instruments, when entered into on normal commercial terms with unrelated parties, are unlikely to prevent instruments that otherwise meet the criteria in paragraph 16A or paragraph 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 instruments (such as receivables, payables and equity instruments) and derivative financial instruments (such as financial options, futures and forwards, interest rate swaps and currency swaps). Derivative financial instruments meet the definition of a financial instrument and, accordingly, are within the scope of this Standard. AG16 Derivative financial instruments create rights and obligations that ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riter 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 which one party (the purchaser) promises to deliver ₹ 1,000,000 cash in exchange for ₹ 1,000,000 face amount of fixed rate government bonds, and the other party (the seller) promises to deliver ₹ 1,000,000 face amount of fixed rate government bonds in exchange for ₹ 1,000,000 cash. During the six months, both parties have a contractual right and a contractual obligation to exchange financial instruments. If the market price of the government bonds rises above ₹ 1,000,000, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in effect, trading the underlying commodity. The ability to buy or sell a commodity contract for cash, the ease with which it may be bought 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 paragraph 8). 4 [AG21 Except as required by Ind AS 115, Revenue from Contracts with Customers, a contract that involves the receipt or delivery of physical assets does not give rise to a financial asset of one party and a financial liability of the other party unless any corresponding payment is deferred past the date on which the physical assets are transferred. Such is the case with the purchase or sale of goods on trade credit.] AG22 Some contracts are commodity-linked, but do not involve settlement through the physical receipt or delivery of a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a lack of funds, a statutory restriction or insufficient profits or reserves, does not negate the obligation. An option of the issuer to redeem the shares for cash does not satisfy the definition of a financial liability because the issuer does not have a present obligation to transfer financial assets to the shareholders. In this case, redemption of the shares is solely at the discretion of the issuer. An obligation may arise, however, when the issuer of the shares exercises its option, usually by formally notifying the shareholders of an intention to redeem the shares. 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 share as an equity instrument or a financial liability is not affected by, for example: (a) a history of making distri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at will be settled 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 changes in an underlying variable (eg a commodity price) is a financial asset or a financial liability. An example is a written option to buy gold that, if exercised, is settled net in the entity s own instruments by the entity delivering as many of those instruments as are equal to the value of the option contract. Such a contract is a financial asset or financial liability even if the underlying variable is the entity s own share price rather than gold. Similarly, a contract that will be settled in 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 chang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of it that is subject to the obligation) is classified as a financial liability in consolidated financial statements. AG29A Some types of instruments that impose a contractual obligation on the entity are classified as equity instruments in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D. Classification in accordance with those paragraphs is an exception to the principles otherwise applied in this Standard to the classification 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 28 32) AG30 Paragraph 28 applies only to issuers of non-derivative compound financial instruments. Paragraph 28 does not deal with compound financial instruments from the perspective of holders. Ind AS 109 deals with the classification and measuremen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain 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 event of conversion before a specified date. The difference, at the date the terms are amended, between the fair value of the consideration the holder receives on conversion of the instrument under the revised terms and the fair value of the consideration the holder would have received under the original terms is recognised as a loss in profit or loss. Treasury shares (paragraphs 33 and 34) AG36 An entity s own equity instruments are not recognised as a financial asset regardless of the reason 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) the event of insolvency or bankruptcy of the entity and all of the counterparties. AG38C The nature and extent of the right of set-off, including any conditions attached to its exercise and whether it would remain in the event of default or insolvency or bankruptcy, may vary from one legal jurisdiction to another. Consequently, 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 parties) need to be considered to ascertain whether the right of set-off is enforceable in the normal course of business, in an event of default, and in the event of insolvency or bankruptcy, of the entity and all of the counterparties (as specified in paragraph AG38B (b)). Criterion that an entity intends either to settle on a net basis, or to realise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 long-term debt. Each of the individual financial instruments that together constitute a synthetic instrument represents a contractual right or obligation with its own terms and conditions and each may be transferred or settled separately. Each financial instrument is exposed to risks that may differ from the risks to which other financial instruments are exposed. Accordingly, when one financial instrument in a synthetic instrument is an asset and another is a liability, they are not offset and presented 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, Financial Instruments: Present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing paragraph numbers appear as Deleted in IAS 32. In order to maintain consistency with paragraph numbers of IAS 32, the paragraph numbers are retained in Ind AS 32: (i) paragraph 1 (ii) paragraph 4(c) (iii) paragraphs 5-7 (iv) paragraphs 51-95 (v) AG24 of Appendix A (vi) AG38 of Appendix A 6. Following references to Illustrative Examples which are not integral part 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 that involves the receipt or delivery of physical assets does not give rise to a financial asset of one party and a financial liability of the other party unless any corresponding payment is deferred past the date on which the physical assets ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the amount receivable under the lease contract rather than the leased 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 (except as regards individual payments currently due and payable). AG10 Physical assets (such as inventories, property, plant and equipment), leased assets and intangible assets (such as patents and trademarks) are not financial assets. Control of such physical and intangible assets creates an opportunity to generate an inflow of cash or another financial asset, but it does not give rise to a present right to receive cash or another financial asset. 9. Substituted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VII)] dated 30-03-2019 w.e.f. 01-04-2019 before it was read as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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