Financial Instruments IFRS 9

IAS 32 FINANCIAL INSTRUMENTS Financial instrument is any contract that gives rise to both a financial assets of one entity and a financial liability or equity instrument of another entity. Financial Asset This can be cash An entity’s instrument of another entity A contractual right to receive cash or another financial assets from another entity Examples are trade receivables and shares Financial Liability This is any contractual obligation to deliver cash or another financial assets to another entity or To exchange financial instrument with another entity Examples include trade payable, loans or redeemable preference shares 11/28/2018

IAS 32 FINANCIAL INSTRUMENTS Issue of shares The basic double entry to record a share issue is Dr bank Cr share capital Cr share premium Share issue cost are normally charged against share premium as follows Dr share premium Cr bank If the issue cost exceed the balance on the share premium account, they should be charged against retained earnings. 11/28/2018

IAS 32 FINANCIAL INSTRUMENTS Bonus issues of shares A bonus issue is an issue of shares to existing shareholders for free. The double entry to record a bonus issue is Dr share premium Cr share capital Right issue A right issue is an issue of share below the full market value to existing shareholders. 11/28/2018

IAS 32 FINANCIAL INSTRUMENTS Redeemable preferences IAS 32 classify the redeemable preference shares as a liability not an equity instrument. When a company issues redeemable shares, over the period between the issues and redemptions of the shares, there is a finance cost to the company. This consist of two elements The dividend paid The difference between eventual cost of redemption and the original amount raised from the share issues( after deducting the issue costs) Accounting for finance charges The finance charges are calculated in a similar way to finance leases issue cost dividend due over the issue period redemption cost The total finance cost is spread over the issue period using the actuarial method 11/28/2018

IAS 32 FINANCIAL INSTRUMENTS Purchase and Redemption of shares When a company has purchased its own equity shares, but has not canceled them by the reporting date, the shares will be reclassified as treasury shares and shown as a deduction in equity. The double entry is Dr treasury shares or distributable reserve Cr bank 11/28/2018

Summary - Investments held for resale are shown at market value. Movements go through the Profit and Loss Account - Investments held to maturity a shown at amortised cost

Laidlaw ACCA Dec 13 b)i) Two possibilities with trade receivables. Either they are sold or you receive a loan with the receivables as security The information is given as ‘who bears the risk of non payment’ Here any receivables not recovered will be sold back- therefore this is a loan as non collection risk remains with Laidlaw Therefore charge admin fee to P&L as with interest Receivables remain as previously and the $1.8m is a short term loan which is repayable to Finease. As receivables pay, Dr Loan Cr Receivables

Laidlaw b) ii) This is a sale and leaseback transaction where the lease is an operating lease All transactions here are at market values so the transactions have been correctly accounted for Gain on sale therefore is $1.5m Rent will be accounted for as ‘usual’ rent Laidlaw has created a call option but the option has no value as the right to purchase is at market value

Laidlaw a) Fundamental are necessarily required, Enhancing are desirable but not compulsory Accounts should show/reflect what has actually happened everything (material) that has happened be free of bias If users are going to have faith in them