PAS 32

• PAS 32 applies to all types of financial instruments

  except the following for which other Standards apply:

  1. Investments in subsidiaries, associates and joint ventures;
  2. Employer’s rights and obligations under employee benefit plans and share-based payments; and
  3. Insurance contracts
• 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.
• Financial asset is any asset that is:

  1. Cash;
  2. An equity instrument of another entity;
  3. A contractual right to receive cash or another financial asset from another entity;
  4. A contractual right to exchange financial instruments with another entity under conditions that are potentially favorable; or
  5. A contract that will or may be settled in the entity’s own equity instruments and is not classified as the entity’s own equity instrument.
• Financial liability is any liability that is:

  1. A contractual obligation to deliver cash or another financial asset to another entity;
  2. A contractual obligation to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity; or
  3. A contract that will or may be settles in the entity’s own equity instruments and is not classified as the entity’s own equity instrument.
• Cash and cash equivalents

  Financial asset
• Receivables

  Financial asset
• Investment in equity or debt instruments of other entities such as held for trading securities, investments in subsidiaries, associates, joint ventures, investments in bonds, and derivative assets

  Financial asset
• Exclude from FA:

  1. Physical assets, such as inventories, biological assets, PPE and investment property
  2. Intangible assets
  3. Prepaid expenses and advances to suppliers
  4. The entity’s own equity instrument (eg. treasury shares)
• Payables

  Financial liability
• Lease liabilities

  Financial liability
• Held for trading liabilities and derivative liabilities

  Financial liability
• Redeemable preference shares issued

  Financial liability
• Security deposits and other returnable deposits

  Financial liability
• Exclude from FL:

  1. Unearned revenues and warranty obligations that are to be settled by future delivery of goods or provision of services.
  2. Taxes, SSS, Philhealth, and PAG-IBIG payables
  3. Constructive obligations
• Equity instrument

  is “any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.”
• Financial Liability

  The entity has a contractual obligation to pay cash or another financial asset or to exchange financial instruments under potentially unfavorable condition.
• Equity Instrument

  The entity has NO contractual obligation to pay cash or another financial asset or to exchange financial instruments under potentially unfavorable condition.
• Financial Liability

  The contract requires the delivery of:

  A variable number for a fixed amount

  OR

  A fixed number for a variable amount
• Equity Instrument

  The contract requires the delivery (receipt) of

  A fixed number for a fixed amount
• Redeemable Preference Shares

  Are preferred stocks which the holder has the right to redeem at a set date.

  Are classified as financial liability because when the holder exercises its right to redeem, the issuer is mandatorily obligated to pay for the redemption price.
• Callable Preference Shares

  Are preferred stocks which the issuer has the right to call at a set date.

  Are classified as equity instrument because the right to call is at the discretion of the issuer and therefore has no obligation to pay unless it chooses to call on the shares.
• Puttable Instrument (Financial Liability)

  is one that gives the holder the right to return (put back) the instrument to the issuer in exchange for cash or another financial asset or is automatically put back to the issuer upon the occurrence of a specified future event.
• Compound Financial Instruments


  is a financial instrument that, from the issuer’s perspective, contains both a liability and an equity component.
• 1. The value assigned to the liability component is its fair value without the equity feature.
  2. The value assigned to the equity component is the residual amount after deducting the value assigned to the liability component from the total fair value of the compound instrument.
• Convertible bonds

  are bonds that can be converted into shares of stocks of the issuer.
• Treasury Shares (Ordinary Shares)

  Are an entity’s own shares that were previously issued but were subsequently reacquired but not retired.

  • Treasury shares are treated as a deduction from equity.
  • Treasury share transactions are recognized directly in equity. Therefore, they do not result in gains or losses.
• Interest, Dividends, Losses and Gains that relate to:

  Financial Liability

  Are recognized as income or expenses in profit or loss
• Interest, Dividends, Losses and Gains that relate to:

  Equity Instrument

  Are recognized as directly in equity.
• Transaction costs that relate to:

  Financial Liability

  Are included in the carrying amount of the financial liability and subsequently amortized to PoL except liabilities measured at FVPL.
• Transaction costs that relate to:

  Equity Instrument

  Are accounted for as a deduction from equity.
• A financial asset and a financial liability are offset and

  only the net amount is presented in the statement of

  financial position when the entity has both:

  1. a legal right of setoff and
  2. an intention to settle the amounts on a net basis or simultaneously
• PFRS 9 — recognition and measurement

  PFRS 7 — disclosures