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25
FINANCIAL INSTRUMENTS: RECOGNITION
AND MEASUREMENT (lAS 39)
1. INTRODUCTION
1.1
lAS 39,
Financial Instruments: Recognition and Mea surement.
addre sses the accounting for
financial assets and financia l liabilities. More specifically, lAS 39 contains requirements for
• When a financial asset or financial liabilit y should first be recog nized in the balance sheet
• When a financial asset or a financia l liability should be derecognized (i.e., remove d from the
balance sheet)
• How a financia l asset or financia l liability should be classified into one of the categorie s of
financial assets or financial liabilities
• How a financial asset or financial liability should be measured, including
• When a financial asset or financial liability should be measured at cost, amortized cos t,
or fair value in the balance sheet
• When to recognize and how to measure impairment of a financi al asset or group of finan–
cial assets
• Special accounting rules for hedging relationships involving a financia l asset or financial
liabi lity
• How a gain or loss on a financial asse t or financial liability should be recognized either in
profit or loss or as a separate component of equity
1.2 lAS 39 does not deal with presentation of issued financia l instruments as liabilities or equity,
nor does it dea l with disclosures that entities should provide about financial instruments.
Presentati on issues are addressed in lAS 32,
Fina ncial Instrumen ts: Presentation ;
disclosure issues
are addresse d in IFRS 7,
Financial Instruments: Disclosures.
1.3 Many view lAS 39 as one of the most complex Standards, if not the most complex one, to
apply in practice . More complex areas include the applicatio n of the derecognition requiremen ts for
financial assets, fair value measurement, and the designation and measurement of hedging
relationships.
2.
SCOPE
In genera l, lAS 39 applies to all entities in the accounting for both
• Financia l instruments; and
• Other contracts that are specifica lly included in the scope.
2.1 Financial In struments
2.1.1 lAS 39 applies in the accounting for all financial instruments exce pt for those financia l in–
struments specifi cally exempted. As discussed in Chapter 25 on lAS 32,
afinancial instru men t
is
defined as any contract that gives rise to a financial asset of one entity and a financia l liability or
equity instrument of another entity. Thus, financial instruments include financial assets, financia l
liabilit ies, and equity instruments.
Ex ample
Financial assets within the scope of lAS
39
include
• Cash
• Deposits in other entities
• Receivables (e.g., trade receivables)
• Loans
to
other entities
• Investments in bonds and other debt instruments issued by other entities
• Investments in shares and other equity instruments issued by other entities