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Accounting
Financial Instruments
Question | Answer |
---|---|
Cumulative pref share’s dividends | accumulate if not enough profit → carried forward to next year |
Convertible pref shares | converted into ordinary shares or any other instrument |
Redeemable pref shares | repaid in future just like a normal loan |
Financial asset | 1)Cash, or (2)Equity instrument of another entity, or (3)Contractual right → receive cash or another fin. asset, or |
Financial asset | (4)Contractual right → exchange fin. assets/liabilities with other entities under favourable conditions, or (5)Contract that will be settled in entity’s own equity instruments (e.g. shares) other than for a fixed number of equity instrument |
Financial liability | Contractual obligation |
Financial liability | (1)Deliver cash or another fin. asset to another entity, or |
Financial liability | (2)To exchange fin. assets/liabilities with other entities under unfavourable conditions, or (3)That will be settled in the entity’s own equity instruments (e.g. shares) other than for a fixed number of equity instruments |
issuer does not have an unconditional right | IS NOT EQUITY! |
If issuer will settle using its own equity | variable number of equity instruments it is FINANCIAL LIABILITY |
compulsory redeemable or by choice of the holder it is | FINANCIAL LIABILITY |
If redeemable by choice of the issuer | equity (or a compound instrument) |
Held for trading | The instrument was acquired primarily with the purpose of trade (sell in the near future), or The instrument is held in a portfolio with evidence of short-term profit-taking (speculative purposes) |
When is FV = 0 | When shares are compulsory convertable |