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FINANCIAL INSTRUMENTS:
PRESENTATION (lAS 32)
1. INTRODUCTION
1.1
lAS 32,
Financial Instruments: Presentation,
addresses the presentation of financia l instru-
ments as financial liabilities or equity. lAS 32 includes requirements for
• The presentation of financial instruments as either financial liabiliti es or equity, includi ng
• When a financial instrument should be presented as a financial liability or equity instru–
ment by the issuing entity
• How to separate and present the components of a compound financial instrument that con–
tains both liability and equity elements
• The account ing treatment of reacquired equity instruments of the entity (" treas ury shares")
• The presentation of interest, dividends, losses, and gains related to financial instruments
• The circumstances in which financial assets and financi al liabilities should be offset
1.2 lAS 32 complements the requirements for recognizing and measuring finan cial assets and
financial liabilities in lAS 39,
Financial Instruments: Recognition and Measurement ,
and the dis–
closure requirements for financial instruments in IFRS 7,
Financial Instruments: Disclosures.
1.3 Prior to the issuance of IFRS 7, lAS 32 contained both presentation and disclosure requ ire–
ments and was entitled
Financial Instruments: Disclosure and Presentation.
IFRS 7, which be–
comes effect ive for annual periods beginning on or after January I, 2007, relocates the disclosure
requi rements in lAS 30 and lAS 32 to IFRS 7. Therefore, IASB shortened the title of lAS 32 to
Financial Instruments: Presentation.
2. SCOPE AND DEFINITIONS OF KEY TERMS (in accorda nce wit h l AS 32)
2.1 lAS 32 applies to all entities in the presentation of both
• Financial instruments
• Certa in net settled contracts to purchase or sell nonfinancial items
Fi na ncial ins trument. Any contract that gives rise to a financial asset of one entity and a
fi–
nanci alliabi lity or equity instrument of another entit y.
2.2 In this definition, "contract" refers to an agreement between two part ies that the parties have
little, if any, discretion to avo id, usually because the agreement is enforce able by law. An asset or
liability that is not contractual (e.g., an obligation to pay income taxes) is not a financial instrument
even though it may result in the receipt or delivery of cash.
2.3 The term "financial instrument" encompasses equi ty instrumen ts, financial asset s, and finan–
cial liabilities. The se three terms all have specific defi nitions that help ent ities determine which
items should be accounted for as financia l instruments.
Equity inst rument. Any contract that evidences a residual interest in the assets of an entity
after deducting all of its liabil ities.
2.4 This definition reflect s the basic accounting equation that states that equity equals assets less
liabil ities.