IFRS 7:

FINANCIAL INSTRUMENTS

PRESENTED BY:

DIANA PATTNAIK
&
KAUSTAV BANERJEE
WHY????????

Entity’s financial
position

• Significance of financial instruments in

Entity’s performance
TO STAKEHOLDERS
WHY????????

• Extent and management of RISK during the period and at the reporting date

TO STAKEHOLDERS
APPLICABLE TO ALL ENTITIES EXCEPT
• INTERESTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES ACCOUNTED
FOR IN ACCORDANCE WITH AS 21

• EMPLOYERS’ RIGHTS AND OBLIGATIONS ARISING FROM EMPLOYEE BENEFIT

PLANS, AS 15

• CONTRACTS FOR CONTINGENT CONSIDERATION IN A BUSINESS COMBINATION.

• INSURANCE CONTRACTS AS DEFINED IN ACCOUNTING STANDARD ON

INSURANCE CONTRACTS.

• FINANCIAL INSTRUMENTS, CONTRACTS AND OBLIGATIONS UNDER SHARE

BASED PAYMENT TRANSACTION
 FINANCIAL INSTRUMENT

Financial asset Financial liability

In one entity say ABC In another entity: say entity XYS

Balance sheet of ABC(asset side) Balance sheet of XYZ(liabilities side)

Investment in shares Equity capital of xyz

Investment in debentures Debentures issued

Sundry debtors Sundry creditors

 FINANCIAL ASSET
FINANCIAL ASSET

cash

Equity of another entity Contract to settle its own shares

Contractual right

Either receive cash or Derivative settlement

Non derivative
another FA
Receive variable number Other than by fixed amount
of cash or asset- 1000 shares
Or, exchange another Rs. 10,000 settled in shares later
financial asset based on future market price
 FINANCIAL LIABILITY
A financial liability

Contractual obligation Contract to settle its own shares

Either – deliver cash or another

FA

Non derivative Derivative

Or, exchange financial assets or Deliver – variable Deliver fixed number of

liabilities – conditions number debentures shares ESOP(grant date)
unfavourable convertible into
equity shares based
Bills receivable being set off on future market
against bills payble price
FINANCIAL INSTRUMENT
 Financial instrument

Primary Derivative Embedded

financial financial derivatives
instrument instrument
Accounting treatment of financial liabilities

1 INITIAL RECOGNITION AND MEASUREMENT

CLASSIFICATION CATEGORY INITIAL MEASUREMENT

At FVTPL At fair value

Short term payables At original invoice amount

Other financial liabilities(residual At fair value subject to

category) consideration of transaction cost
 FAIR VALUE THROUGH PROFIT AND
LOSS(FVTPL)
 Applicable to both financial assets and
financial liabilities

 Items of financial assets or liabilities that

should meet either of the two conditions

Designated by the entity as FVTPL

Held for trading upon INITIAL RECOGNITION
HELD FOR TRADING
THE ITEM IS:
 Acquired principally for the purpose of selling
or repurchasing in the near term

 A part of a portfolio of identified financial

instruments and for which there is evidence of
recent actual pattern of short stock lending
scheme

 A derivative other than one that has been

designated as an effective hedging instrument
2 SUBSEQUENT MEASUREMENT

LIABILITIES CLASSIFIED AS:

 FVTPL should continue to be measured at fair

value at each reporting date.

 SHORT TERM PAYBLES should continue to be

measured at original invoice amount.
SHORT TERM PAYBLES
 PAYBLES ARE OF SHORT TERM NATURE

 THEY DO NOT CARRY ANY STATED INTEREST

RATE

 EFFECT OF DISCOUNTING IS ASCERTAINED TO

BE IMMATERIAL
 3 DE-RECOGNITION

 An item of financial liability should be

de-recognized(eliminated from balance
sheet) when the liability is

SETTLED
CANCELLED
EXTINGUISHED

Resulting gain or loss is recognized in P&L

ACCOUNTING TREATMENT OF FINANCIAL ASSETS

1 INITIAL CLASSIFICATION
CLASSIFICATION CATEGORY INITIAL MEASUREMENT

At FVTPL fair value

Short term receivables Original invoice amount

Other financial assets Fair value

 2. SUBSEQUENT CLASSIFICATION

 Four categories

LOANS AND RECEIVABLES

FVTPL HELD TO MATURITY
INVESTMENTS

AVAILABLE FOR SALE

FINANCIAL ASSETS
HELD TO MATURITY
 NON DERIVATIVE FINANCIAL ASSETS

 FIXED OR DETERMINABLE PAYMENTS AND

FIXED MATURITY

 ENTERPRISE HAS POSITIVE INTENTION AND

ABILITY TO HOLD TO MATURITY

 MEASURED AT AMORTISED COST AFTER

INITIAL RECOGNITION
LOANS AND RECIVABLES
 Non derivative financial instruments with fixed or
determinable payments but not quoted in an
active market

 Not classified after initial recognition as

FVTPL,HTM OR AVS

 It is not an interest in a pool of assets

 Measured at amortised cost after initial

recognition
 Risk disclosures
 Credit risk

 Liquidity risk

 Market risk

Other price risk

Currency Interest rate

risk risk
Important disclosures
Balance sheet related
 Categories of financial assets classified into financial
assets at FVTPL, HTM, LOANS AND RECEIVABLES,
AVAILABLE FOR SALE.

 Financial liabilities falling in the categories of FVTPL

and those liabilities measured at amortised cost.

 Where an entity has designated a LOAN OR RECEIVABLE

as at FVTPL, maximum exposure to credit risk and the
amount by which any related credit derivatives or
similar instruments mitigate the maximum exposure to
credit risk.
 Wherea financial asset has been reclassified,
the amount reclassified into and out of each
category and the reason for reclassification

 Detailsof financial assets involving transfers

where transfers of a part or whole of the
asset does not qualify for derecognition
 5. Defaults and breaches in loans and
receivables.

 6. Existence of special features in a financial

liability, such as multiple embedded
derivatives whose values are interdependent.
INCOME STATEMENT OR EQUITY RELATED

 Netgains or net losses on financial assets or

financial liabilities at FVTPL, and in respect of
other categories of assets.

 Totalinterest income and expense relating to

financial instruments that are not at FVTPL
ITEMS DESIGNATED AS FVTPL

A narrative description how designation as at

FVTPL is consistent with the risk management
policy or investment strategy of an
enterprises.

 When a financial liability is classified as at

FVTPL the amount of change in fair value,
(both for the period as well as on a
cumulative basis) attributable to a change in
credit risk.
OTHER DISCLOSURES

 Accounting policies relating to financial instruments

 In the area of HEDGE ACCOUNTING

 Description of each type of hedge

 Items designated as hedging instruments

nature of risks being hedged

 Timing of expected cash flows under cash flow hedges

 Timing when these are likely to affect the profit or loss