Financial Instruments Essay

895 words - 4 pages

“   Financial instrument is an important topic in accounting; there are several standard relating to it. The best standard identifies & explains the financial instrument is IAS32, IAS 39, and IFR7&IFRS9. 4.1 IAS 32 Financial Instruments: Disclosure& Presentation In 2005 International Accounting standard board (IASB) issued IAS32 that was the first standard relating to financial instrument and deals with disclosure and presentation of financial instruments. The objective of this standard is to provide information to improve the understanding of users about the importance of financial instruments as a result they can understand the entity performance and financial position better and the users ...view middle of the document...

4.2 IAS 39 Financial Instruments: Measurement and Recognition The objective of this standard is to establish principle for recognition and measurement issues for financial assets, financial liability, and derivatives and to some non financial item. This standard requires all the financial instruments to be initially recorded at fair value and recognize financial assets and financial liability when the entity becomes a party to contractual provision of the instrument. It classify financial instrument to four category each one has its rules for measurement, Subsequent measurement, classification, recognition, impairment and gain and loss. IAS39 divided financial instruments to four categories:- First category is financial assets or financial liability at fair value through profit or loss; it must measurement at fair value .Example for this instrument is call option and forward exchange contract. This financial instrument classified as held for trading and must be designated at fair value through profit or loss. Subsequent measurement for these instruments will be at fair value. Second category is Held-to- maturity instruments, it must measurement at fair value. Example for this instrument is commercial bill investment, government bonds and corporate note. This financial instrument must be non –derivative and the entity has a positive ability and intent to hold them to maturity. Subsequent measurement for these instruments will be at a mortised cost. Third category is loans and receivables; it must measurement at fair value. Example for this instrument is account receivables and loan to other entities. This financial instrument must be non –derivative financial assets with fixed payments that are not quoted in active market. Subsequent measurement for these instruments will be at a mortised cost. Fourth category is Available -for-sale financial assets; it must measurement at fair value. Example for this...

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