IAS 32 classify as _________________: an instrument that is virtually certain to result in regular cash payments by the entity
Question
IAS 32 classify as _________________: an instrument that is virtually certain to result in regular cash payments by the entity
Solution
IAS 32 classifies an instrument that is virtually certain to result in regular cash payments by the entity as a "Financial Liability".
Here are the steps to understand this:
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IAS 32 is a standard issued by the International Accounting Standards Board (IASB) that deals with the presentation of financial instruments.
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A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
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According to IAS 32, a financial liability is any liability that is a 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 unfavorable to the entity.
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Therefore, if an instrument is virtually certain to result in regular cash payments by the entity, it is classified as a financial liability under IAS 32.
Similar Questions
IAS 32 treat as a ________________: an instrument which gives its holder a right to receive cash rather than equity which no rational holder would exercise.
Broadly speaking, apart from this exemption, an instrument can only be classified as equity under IAS 32 if the issuer has an unconditional right to avoid delivering cash or another financial instrument or, if it is settled through the entity’s own equity instruments, it is for an exchange of a fixed amount of cash for a fixed number of the entity’s own equity instruments. In all other cases it would be classified as a ________________________
Application of the basic definitions in IAS 32 means that an instrument is an equity instrument only if the instrument includes no contractual obligation to deliver cash or another __________________ to another entity.
IAS 32 examines whether an individual instrument (or class of instruments) issued by the ___________ is a financial liability or equity.
A cash instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
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