Chapter 9

Financial Instrument

A contract that creates a financial asset for one entity and a financial liability or equity instrument for another.

Financial Asset

An asset that represents cash, an equity instrument of another entity, or a contractual right to receive cash or another financial asset.

Financial Liability

A contractual obligation to deliver cash or exchange financial instruments under unfavorable conditions.

Equity Instrument

A contract representing residual interest in an entity’s assets after deducting liabilities.

Cash and Cash Equivalents

Cash on hand, demand deposits, and short

Receivables

Amounts owed to an entity by customers or other parties for goods or services.

Investments in Equity or Debt Instruments of Other Entities

Financial assets representing ownership (equity) or lending (debt) in another entity.

Sinking Fund and Other Long

Term Funds

Debt Instrument

A financial contract representing a borrowing arrangement, such as bonds or loans.

Debt Security

A negotiable financial instrument representing a creditor relationship, like bonds or treasury bills.

Equity Securities

Shares of stock or other ownership interests in a company.

Advances to Suppliers

Prepayments made to suppliers before goods or services are received.

Statutory Requirements

Legal obligations imposed by regulations or laws.

Commodity Contracts

Agreements to buy or sell commodities at a future date, often traded on exchanges.

Classification of Financial Assets

Categorization based on business models and contractual cash flow characteristics.

Basis of Classification

Financial assets classified as Amortized Cost, FVOCI, or FVTPL.

Classification at Amortized Cost

Assets held to collect contractual cash flows, measured at amortized cost.

Classification at Fair Value Through Other Comprehensive Income (FVOCI)

Assets whose cash flows include principal and interest, managed for collection and sale.

Classification at Fair Value Through Profit or Loss (FVTPL)

Assets measured at fair value with gains/losses recognized in profit or loss.

Investments and Equity Instruments at FVOCI

Equity investments designated for fair value measurement through OCI.

Option to Designate a Financial Asset at FVTPL

An entity’s choice to measure certain assets at fair value through profit or loss.

Business Model

How a company manages financial assets to generate cash flows.

Hold to Collect

A business model where assets are held to collect cash flows.

Hold to Collect and Sell

A business model where assets are managed for collection and sale.

Matter of Fact

A statement based on objective evidence rather than opinion.

Held for Trading Security

A financial asset acquired for short

Derivative

A financial instrument deriving value from an underlying asset, index, or rate.

Solely Payments of Principal and Interest (SPPI)

A test to determine if a financial asset’s cash flows consist only of principal and interest payments.

Principal

The original amount of a loan or financial asset.

Interest

The cost of borrowing money, typically expressed as a percentage.

Fair Value

The price an asset would sell for in an orderly transaction between market participants.

Transaction Costs

Costs incurred to acquire or dispose of a financial asset or liability.

Transaction Price

The agreed

Going Concern

The assumption that a business will continue operating for the foreseeable future.

Mark

to

Unit of Account

The level at which an asset or liability is measured

Principal Market

The market with the highest volume and level of activity for an asset or liability.

Current Market Conditions

Economic and financial factors affecting asset values and business operations.

Most Advantageous Market

The market that maximizes an asset’s selling price or minimizes liability transfer costs.

Transport Costs

Costs incurred to bring an asset to its principal or most advantageous market.

Market Approach

A valuation method based on market prices of similar assets

Cost Approach

A valuation method based on replacement cost.

Income Approach

A valuation method based on expected future cash flows.

Bid Price

The highest price a buyer is willing to pay for an asset.

Ask Price

The lowest price a seller is willing to accept.

Active Market

A market with frequent and regular transactions for an asset.

Level 1 Inputs

Observable market prices for identical assets.

Level 2 Inputs

Inputs based on observable but not directly quoted prices.

Level 3 Inputs

Unobservable inputs based on estimates and models.

FVOCI Mandatory

Financial assets required to be measured at FVOCI based on their characteristics.

FVOCI Election

An option to measure certain equity investments at FVOCI.

Investments

Assets acquired for income generation or capital appreciation.

Investment in Equity Securities Measured at FVOCI

Equity investments recorded at fair value with gains/losses in OCI.

Investment in Debt Securities Mandatorily Measured at FVOCI

Debt securities required to be measured at FVOCI.

Investment in Debt Securities Measured at Amortized Cost

Debt investments held for contractual cash flows, measured at amortized cost

Investment Property

Real estate held for rental income or capital appreciation.

Investment in Associate

Ownership in another entity where significant influence exists.

Investment in Subsidiary

Ownership of more than 50% of another entity, indicating control.

Investment in Joint Venture

A business arrangement where two or more parties share control.

Investments in Long

Term Funds

Contingency or Insurance Fund and Similar Reserves

Funds set aside for unforeseen events or insurance claims.

Certain Derivatives Designated as Hedging Instruments

Derivatives used to manage financial risks through hedging.

Financial Statement Presentation

The format and structure of financial statements according to accounting standards.