theajojohn

Financial instruments needs to be initially measured and recognised at their fair value after transaction cost.  When a financial instrument is obtained at market rates, then the the instrument value is considered to be the fair value however when the financial instrument is obtained at off market rates (concessional rates are generally seen) then the fair value is obtained by discounting all the repayments at market rate on the date of recognition. Let us take an example where there is a 10% debentures issued by an entity of Rs 1,000,000 at a concessional interest rate of 10% for a tenor of 5 years redeemable at par without any transaction cost. Where the market rate for similar debentures is 10%. Then the fair value for recognition is Rs 1,000,000 and it is amortised as per table 1. 1. Amortisation of Loan Year End Opening Balance Interest Repayments Closing Balance (a) (b) (c) = (b*10%) (d) (e) = (b+c-d) 1 1,000,000.00 100,000.00 100,000.00 1,000,000.00 2 1,000,000.00 100,000.00...

Financial instruments shall be measured and recognised based on the intention to hold or dispose the instrument of benefits from its cashflow from its capital appreciation or contractual cashflow. Where the intention is to hold till maturity, and obtain benefits from the contractual cashflow in form of interest or dividend then it is measured and recognised in ACM i.e, amortised cost method.  Where the intention is to hold for few periods and obtain benefits from the sale of asset in form of capital appreciation then it is measured and recognised in FVTOCI i.e. Fair value through other comprehensive income. Where the intention is to not hold and just obtain benefits from the sale of asset in form of capital appreciation then it is measured and recognised in FVTPL i.e. Fair value through profit and loss. Financial liabilities are generally measured in acm method. Usually only equity instruments and derivatives are disclosed in FVTPL. It maybe noted that, equity instruments can be di...

A preference share, debenture and loan are classified into financial liability or equity instument based on their features namely:  Income  Redemability (Principal) Convertibility Classification of various instuments into financial liability and equity instument :    When income from the said intrument is mandatory it becomes financial liabiilty otherwise it becomes equity instument.  When the instrument is redeemable it becomes financial liabiilty otherwise it becomes equity instrument. When the instrument is convertible into variable number of equity shares it becomes a financial liability but when it is fixed and compulsorily convertible it is equity instrument otherwise it is compound financial instrument.  When there is a mix of features, such instrument is called as compound financial instrument. The difference only happens from the point of view of the issuer of the instrument because in any case for the holder it is investment of their money which c...

Financial instruments are contractual instrument which when executed becomes, an asset in the books of one entity and liability in the books of another enitity (where both the entities are party to the contract). On analysis of the definition we will come to understand that, a financial instrument has following characteristics: Contractual instument Financial obligation or right Financial assets are :  Cash and Bank Balance  Right to receive cash Equity instuments in other entity Right to receive equity instruments in other entity  Derivative contracts, favourable for entity Financial liabilities are :  Obligation to deliver cash Obligation to deliver other financial assets Obligation to deliver variable number of own equity Derivative contracts, unfavourable for entity Equity instruments are the instruments which gives residual interest in the net worth of the entity or it is contractual obligation to deliver a fixed number of equity shares. We should note that, sta...