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TMI BlogFinancial Instruments: PresentationX X X X Extracts X X X X X X X X Extracts X X X X ..... l Instruments: Disclosures. Scope 4 This Standard shall be applied by all entities to all types of financial instruments except: (a) those interests in subsidiaries, associates or joint ventures that are accounted for in accordance with Ind AS 110, Consolidated Financial Statements, Ind AS 27, Separate Financial Statements, or Ind AS 28, Investments in Associates and joint ventures. However, in some cases, Ind AS 110, Ind AS 27 or Ind AS 28 require or permit an entity to account for an interest in a subsidiary, associate or joint venture using Ind AS 109; in those cases, entities shall apply the requirements of this Standard. Entities shall also apply this Standard to all derivatives linked to interests in subsidiaries, associates or joint ventures. (b) employers rights and obligations under employee benefit plans, to which Ind AS 19, Employee Benefits, applies. (c) [Refer Appendix 1] 10 [(d) insurance contracts as defined in Ind AS 117, Insurance Contracts, or investment contracts with discretionary participation features within the scope of Ind AS 117. However, this Standard applies to: (i) derivatives that are embedded in contracts within the scope of Ind AS 117 if Ind AS 109 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of the receipt or delivery of a non-financial item in accordance with the entity s expected purchase, sale or usage requirements. However, this Standard shall be applied to those contracts that an entity designates as measured at fair value through profit or loss in accordance with paragraph 2.5 of Ind AS 109, Financial Instruments. 9 There are various ways in which a contract to buy or sell a non-financial item can be settled net in cash or another financial instrument or by exchanging financial instruments. These include: (a) when the terms of the contract permit either party to settle it net in cash or another financial instrument or by exchanging financial instruments; (b) when the ability to settle net in cash or another financial instrument, or by exchanging financial instruments, is not explicit in the terms of the contract, but the entity has a practice of settling similar contracts net in cash or another financial instrument, or by exchanging financial instruments (whether with the counterparty, by entering into offsetting contracts or by selling the contract before its exercise or lapse); (c) when, for similar contracts, the entity has a practice of taking de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e puttable financial instruments classified as equity instruments in accordance with paragraphs 16A and 16B, instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation and are classified as equity instruments in accordance with paragraphs 16C and 16D, or instruments that are contracts for the future receipt or delivery of the entity s own equity instruments. A financial liability is any liability that is: (a) a contractual obligation : (i) to deliver cash or another financial asset to another entity; or (ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity; or (b) a contract that will or may be settled in the entity s own equity instruments and is: (i) a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity s own equity instruments; or (ii) a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity s own equity instruments. For this purpose, rights, options or warran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase or sale transaction costs. 13 In this Standard, contract and contractual refer to an agreement between two or more parties that has clear economic consequences that the parties have little, if any, discretion to avoid, usually because the agreement is enforceable by law. Contracts, and thus financial instruments, may take a variety of forms and need not be in writing. 14 In this Standard, entity includes individuals, partnerships, incorporated bodies, trusts and government agencies. Presentation Liabilities and equity (see also paragraphs AG13 AG14J and AG25 AG29A) 15 The issuer of a financial instrument shall classify the instrument, or its component parts, on initial recognition as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset and an equity instrument. 16 When an issuer applies the definitions in paragraph 11 to determine whether a financial instrument is an equity instrument rather than a financial liability, the instrument is an equity instrument if, and only if, both conditions (a) and (b) below are met. (a) The instrument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing features: (a) It entitles the holder to a pro rata share of the entity s net assets in the event of the entity s liquidation. The entity s net assets are those assets that remain after deducting all other claims on its assets. A pro rata share is determined by: (i) dividing the entity s net assets on liquidation into units of equal amount; and (ii) multiplying that amount by the number of the units held by the financial instrument holder. (b) The instrument is in the class of instruments that is subordinate to all other classes of instruments. To be in such a class the instrument: (i) has no priority over other claims to the assets of the entity on liquidation, and (ii) does not need to be converted into another instrument before it is in the class of instruments that is subordinate to all other classes of instruments. (c) All financial instruments in the class of instruments that is subordinate to all other classes of instruments have identical features. For example, they must all be puttable, and the formula or other method used to calculate the repurchase or redemption price is the same for all instruments in that class. (d) Apart from the contractual obligation for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity) or is uncertain to occur but is at the option of the instrument holder. As an exception to the definition of a financial liability, an instrument that includes such an obligation is classified as an equity instrument if it has all the following features: (a) It entitles the holder to a pro rata share of the entity s net assets in the event of the entity s liquidation. The entity s net assets are those assets that remain after deducting all other claims on its assets. A pro rata share is determined by: (i) dividing the net assets of the entity on liquidation into units of equal amount; and (ii) multiplying that amount by the number of the units held by the financial instrument holder. (b) The instrument is in the class of instruments that is subordinate to all other classes of instruments. To be in such a class the instrument: (i) has no priority over other claims to the assets of the entity on liquidation, and (ii) does not need to be converted into another instrument before it is in the class of instruments that is subordinate to all other classes of instruments. (c) All financial instruments in the class of instruments that is subordinate to all other classes of instrume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraphs 16A and 16B or paragraphs 16C and 16D. The financial liability shall be measured at the instrument s fair value at the date of reclassification. The entity shall recognise in equity any difference between the carrying value of the equity instrument and the fair value of the financial liability at the date of reclassification. (b) It shall reclassify a financial liability as equity from the date when the instrument has all the features and meets the conditions set out in paragraphs 16A and 16B or paragraphs 16C and 16D. An equity instrument shall be measured at the carrying value of the financial liability at the date of reclassification. No contractual obligation to deliver cash or another financial asset (paragraph 16(a)) 17 With the exception of the circumstances described in paragraphs 16A and 16B or paragraphs 16C and 16D, a critical feature in differentiating a financial liability from an equity instrument is the existence of a contractual obligation of one party to the financial instrument (the issuer) either to deliver cash or another financial asset to the other party (the holder) or to exchange financial assets or financial liabilities with the holder under cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication as a financial liability does not preclude the use of descriptors such as net asset value attributable to unitholders and change in net asset value attributable to unitholders in the financial statements of an entity that has no contributed equity (such as some mutual funds and unit trusts) or the use of additional disclosure to show that total members interests comprise items such as reserves that meet the definition of equity and puttable instruments that do not. 19 If an entity does not have an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the obligation meets the definition of a financial liability, except for those instruments classified as equity instruments in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D. For example: (a) a restriction on the ability of an entity to satisfy a contractual obligation, such as lack of access to foreign currency or the need to obtain approval for payment from a regulatory authority, does not negate the entity s contractual obligation or the holder s contractual right under the instrument. (b) a contractual obligation that is conditional on a counter party e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Such a contract is a financial liability of the entity even though the entity must or can settle it by delivering its own equity instruments. It is not an equity instrument because the entity uses a variable number of its own equity instruments as a means to settle the contract. Accordingly, the contract does not evidence a residual interest in the entity s assets after deducting all of its liabilities. 22 Except as stated in paragraph 22A, a contract that will be settled by the entity (receiving or) delivering a fixed number of its own equity instruments in exchange for a fixed amount of cash or another financial asset is an equity instrument. For example, an issued share option that gives the counter party a right to buy a fixed number of the entity s shares for a fixed price or for a fixed stated principal amount of a bond is an equity instrument. Changes in the fair value of a contract arising from variations in market interest rates that do not affect the amount of cash or other financial assets to be paid or received, or the number of equity instruments to be received or delivered, on settlement of the contract do not preclude the contract from being an equity instrument. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xed price). 24 A contract that will be settled by the entity delivering or receiving a fixed number of its own equity instruments in exchange for a variable amount of cash or another financial asset is a financial asset or financial liability. An example is a contract for the entity to deliver 100 of its own equity instruments in return for an amount of cash calculated to equal the value of 100 ounces of gold. Contingent settlement provisions 25 A financial instrument may require the entity to deliver cash or another financial asset, or otherwise to settle it in such a way that it would be a financial liability, in the event of the occurrence or non-occurrence of uncertain future events (or on the outcome of uncertain circumstances) that are beyond the control of both the issuer and the holder of the instrument, such as a change in a stock market index, consumer price index, interest rate or taxation requirements, or the issuer s future revenues, net income or debt-to-equity ratio. The issuer of such an instrument does not have the unconditional right to avoid delivering cash or another financial asset (or otherwise to settle it in such a way that it would be a financial liability) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial liability (a contractual arrangement to deliver cash or another financial asset) and an equity instrument (a call option granting the holder the right, for a specified period of time, to convert it into a fixed number of ordinary shares of the entity). The economic effect of issuing such an instrument is substantially the same as issuing simultaneously a debt instrument with an early settlement provision and warrants to purchase ordinary shares, or issuing a debt instrument with detachable share purchase warrants. Accordingly, in all cases, the entity presents the liability and equity components separately in its balance sheet. 30 Classification of the liability and equity components of a convertible instrument is not revised as a result of a change in the likelihood that a conversion option will be exercised, even when exercise of the option may appear to have become economically advantageous to some holders. Holders may not always act in the way that might be expected because, for example, the tax consequences resulting from conversion may differ among holders. Furthermore, the likelihood of conversion will change from time to time. The entity s contractual obligation to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognise financial liabilities for the amounts to be paid to those investors. Similarly, some entities issue groups of insurance contracts with direct participation features and those entities hold the underlying items. Some such funds or underlying items include the entity s treasury shares. Despite paragraph 33, an entity may elect not to deduct from equity a treasury share that is included in such a fund or is an underlying item when, and only when, an entity reacquires its own equity instrument for such purposes. Instead, the entity may elect to continue to account for that treasury share as equity and to account for the reacquired instrument as if the instrument were a financial asset and measure it at fair value through profit or loss in accordance with Ind AS 109. That election is irrevocable and made on an instrument-by-instrument basis. For the purposes of this election, insurance contracts include investment contracts with discretionary participation features. (See Ind AS 117 for terms used in this paragraph that are defined in that Standard.) ] 34 The amount of treasury shares held is disclosed separately either in the balance sheet or in the notes, in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent offering of some shares and a stock exchange listing of other shares) are allocated to those transactions using a basis of allocation that is rational and consistent with similar transactions. 39 The amount of transaction costs accounted for as a deduction from equity in the period is disclosed separately in accordance with Ind AS 1. 40 Dividends classified as an expense may be presented in the statement of profit and loss either with interest on other liabilities or as a separate item. In addition to the requirements of this Standard, disclosure of interest and dividends is subject to the requirements of Ind AS 1 and Ind AS 107. In some circumstances, because of the differences between interest and dividends with respect to matters such as tax deductibility, it is desirable to disclose them separately in the statement of profit and loss. Disclosures of the tax effects are made in accordance with Ind AS 12. 41 Gains and losses related to changes in the carrying amount of a financial liability are recognised as income or expense in profit or loss even when they relate to an instrument that includes a right to the residual interest in the assets of the entity in exchange for cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount due from a third party against the amount due to a creditor provided that there is an agreement between the three parties that clearly establishes the debtor s right of set-off. Because the right of set-off is a legal right, the conditions supporting the right may vary from one legal jurisdiction to another and the laws applicable to the relationships between the parties need to be considered. 46 The existence of an enforceable right to set off a financial asset and a financial liability affects the rights and obligations associated with a financial asset and a financial liability and may affect an entity s exposure to credit and liquidity risk. However, the existence of the right, by itself, is not a sufficient basis for offsetting. In the absence of an intention to exercise the right or to settle simultaneously, the amount and timing of an entity s future cash flows are not affected. When an entity intends to exercise the right or to settle simultaneously, presentation of the asset and liability on a net basis reflects more appropriately the amounts and timing of the expected future cash flows, as well as the risks to which those cash flows are exposed. An intention by on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angement); or (e) obligations incurred as a result of events giving rise to losses are expected to be recovered from a third party by virtue of a claim made under an insurance contract. 50 An entity that undertakes a number of financial instrument transactions with a single counterparty may enter into a master netting arrangement with that counterparty. Such an agreement provides for a single net settlement of all financial instruments covered by the agreement in the event of default on, or termination of, any one contract. These arrangements are commonly used by financial institutions to provide protection against loss in the event of bankruptcy or other circumstances that result in a counterparty being unable to meet its obligations. A master netting arrangement commonly creates a right of set-off that becomes enforceable and affects the realisation or settlement of individual financial assets and financial liabilities only following a specified event of default or in other circumstances not expected to arise in the normal course of business. A master netting arrangement does not provide a basis for offsetting unless both of the criteria in paragraph 42 are satisfied. When financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to pay (or right to receive). AG5 Another type of financial instrument is one for which the economic benefit to be received or given up is a financial asset other than cash. For example, a note payable in government bonds gives the holder the contractual right to receive and the issuer the contractual obligation to deliver government bonds, not cash. The bonds are financial assets because they represent obligations of the issuing government to pay cash. The note is, therefore, a financial asset of the note holder and a financial liability of the note issuer. AG6 Perpetual debt instruments (such as perpetual bonds, debentures and capital notes) normally provide the holder with the contractual right to receive payments on account of interest at fixed dates extending into the indefinite future, either with no right to receive a return of principal or a right to a return of principal under terms that make it very unlikely or very far in the future. For example, an entity may issue a financial instrument requiring it to make annual payments in perpetuity equal to a stated interest rate of 8 per cent applied to a stated par or principal amount of ₹ 1,000. Assuming 8 per cent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract. Accordingly, a lessor does not regard an operating lease as a financial instrument, except as regards individual payments currently due and payable by lessee. AG10 Physical assets (such as inventories, property, plant and equipment), right-of-use assets and intangible assets (such as patents and trademarks) are not financial assets. Control of such physical assets, right-of-use assets and intangible assets creates an opportunity to generate an inflow of cash or another financial asset, but it does not give rise to a present right to receive cash or another financial asset. ] AG11 Assets (such as prepaid expenses) for which the future economic benefit is the receipt of goods or services, rather than the right to receive cash or another financial asset, are not financial assets. Similarly, items such as deferred revenue and most warranty obligations are not financial liabilities because the outflow of economic benefits associated with them is the delivery of goods and services rather than a contractual obligation to pay cash or another financial asset. AG12 Liabilities or assets that are not contractual (such as income taxes that are created as a result of statutory requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the financial instrument is in the class of instruments that is subordinate to all other classes. AG14B When determining whether an instrument is in the subordinate class, an entity evaluates the instrument s claim on liquidation as if it were to liquidate on the date when it classifies the instrument. An entity shall reassess the classification if there is a change in relevant circumstances. For example, if the entity issues or redeems another financial instrument, this may affect whether the instrument in question is in the class of instruments that is subordinate to all other classes. AG14C An instrument that has a preferential right on liquidation of the entity is not an instrument with an entitlement to a pro rata share of the net assets of the entity. For example, an instrument has a preferential right on liquidation if it entitles the holder to a fixed dividend on liquidation, in addition to a share of the entity s net assets, when other instruments in the subordinate class with a right to a pro rata share of the net assets of the entity do not have the same right on liquidation. AG14D If an entity has only one class of financial instruments, that class shall be treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sharing arrangements that allocate profit or loss to instrument holders based on the nominal amount of their instruments relative to others in the class represent transactions with the instrument holders in their roles as owners and should be considered when assessing the features listed in paragraph 16A or paragraph 16C. AG14I The cash flows and contractual terms and conditions of a transaction between the instrument holder (in the role as a non-owner) and the issuing entity must be similar to an equivalent transaction that might occur between a non-instrument holder and the issuing entity. No other financial instrument or contract with total cash flows that substantially fixes or restricts the residual return to the instrument holder (paragraphs 16B and 16D) AG14J A condition for classifying as equity a financial instrument that otherwise meets the criteria in paragraph 16A or paragraph 16C is that the entity has no other financial instrument or contract that has (a) total cash flows based substantially on the profit or loss, the change in the recognised net assets or the change in the fair value of the recognised and unrecognised net assets of the entity and (b) the effect of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial instrument underlying the contract. Conversely, the writer of an option assumes an obligation to forgo potential future economic benefits or bear potential losses of economic benefits associated with changes in the fair value of the underlying financial instrument. The contractual right of the holder and obligation of the writer meet the definition of a financial asset and a financial liability, respectively. The financial instrument underlying an option contract may be any financial asset, including shares in other entities and interest bearing instruments. An option may require the writer to issue a debt instrument, rather than transfer a financial asset, but the instrument underlying the option would constitute a financial asset of the holder if the option were exercised. The option-holder s right to exchange the financial asset under potentially favourable conditions and the writer s obligation to exchange the financial asset under potentially unfavourable conditions are distinct from the underlying financial asset to be exchanged upon exercise of the option. The nature of the holder s right and of the writer s obligation are not affected by the likelihood that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ross-currency interest rate swaps principal is exchanged on inception (and re-exchanged on maturity). Contracts to buy or sell non-financial items (paragraphs 8 10) AG20 Contracts to buy or sell non-financial items do not meet the definition of a financial instrument because the contractual right of one party to receive a non-financial asset or service and the corresponding obligation of the other party do not establish a present right or obligation of either party to receive, deliver or exchange a financial asset. For example, contracts that provide for settlement only by the receipt or delivery of a non-financial item (eg an option, futures or forward contract on silver) are not financial instruments. Many commodity contracts are of this type. Some are standardised in form and traded on organised markets in much the same fashion as some derivative financial instruments. For example, a commodity futures contract may be bought and sold readily for cash because it is listed for trading on an exchange and may change hands many times. However, the parties buying and selling the contract are, in effect, trading the underlying commodity. The ability to buy or sell a commodity contract f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the component assets. The financial asset of the holder and the financial liability of the issuer make the bond a financial instrument, regardless of the other types of assets and liabilities also created. AG24 [Refer Appendix 1] Presentation Liabilities and equity (paragraphs 15 27) No contractual obligation to deliver cash or another financial asset (paragraphs 17 20) AG25 Preference shares may be issued with various rights. In determining whether a preference share is a financial liability or an equity instrument, an issuer assesses the particular rights attaching to the share to determine whether it exhibits the fundamental characteristic of a financial liability. For example, a preference share that provides for redemption on a specific date or at the option of the holder contains a financial liability because the issuer has an obligation to transfer financial assets to the holder of the share. The potential inability of an issuer to satisfy an obligation to redeem a preference share when contractually required to do so, whether because of a lack of funds, a statutory restriction or insufficient profits or reserves, does not negate the obligation. An option of the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for cash or another financial asset at a fixed or determinable date or on demand, the entity also recognises a financial liability for the present value of the redemption amount (with the exception of instruments that have all the features and meet the conditions in paragraphs 16A and 16B or paragraphs 16C and 16D). One example is an entity s obligation under a forward contract to repurchase a fixed number of its own shares for a fixed amount of cash. (b) An entity s obligation to purchase its own shares for cash gives rise to a financial liability for the present value of the redemption amount even if the number of shares that the entity is obliged to repurchase is not fixed or if the obligation is conditional on the counterparty exercising a right to redeem (except as stated in paragraphs 16A and 16B or paragraphs 16C and 16D). One example of a conditional obligation is an issued option that requires the entity to repurchase its own shares for cash if the counterparty exercises the option. (c) A contract that will be settled in cash or another financial asset is a financial asset or financial liability even if the amount of cash or another financial asset that will be received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween members of the group and the holders of the instrument in determining whether the group as a whole has an obligation to deliver cash or another financial asset in respect of the instrument or to settle it in a manner that results in liability classification. When a subsidiary in a group issues a financial instrument and a parent or other group entity agrees additional terms directly with the holders of the instrument (eg a guarantee), the group may not have discretion over distributions or redemption. Although the subsidiary may appropriately classify the instrument without regard to these additional terms in its individual financial statements, the effect of other agreements between members of the group and the holders of the instrument is considered in order to ensure that consolidated financial statements reflect the contracts and transactions entered into by the group as a whole. To the extent that there is such an obligation or settlement provision, the instrument (or the component of it that is subject to the obligation) is classified as a financial liability in consolidated financial statements. AG29A Some types of instruments that impose a contractual obligation on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from one line item within equity to another). There is no gain or loss on conversion at maturity. AG33 When an entity extinguishes a convertible instrument before maturity through an early redemption or repurchase in which the original conversion privileges are unchanged, the entity allocates the consideration paid and any transaction costs for the repurchase or redemption to the liability and equity components of the instrument at the date of the transaction. The method used in allocating the consideration paid and transaction costs to the separate components is consistent with that used in the original allocation to the separate components of the proceeds received by the entity when the convertible instrument was issued, in accordance with paragraphs 28 32. AG34 Once the allocation of the consideration is made, any resulting gain or loss is treated in accordance with accounting principles applicable to the related component, as follows: (a) the amount of gain or loss relating to the liability component is recognised in profit or loss; and (b) the amount of consideration relating to the equity component is recognised in equity. AG35 An entity may amend the terms of a convertible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently has a legally enforceable right to set-off the recognised amounts (paragraph 42(a)) AG38A A right of set-off may be currently available or it may be contingent on a future event (for example, the right may be triggered or exercisable only on the occurrence of some future event, such as the default, insolvency or bankruptcy of one of the counterparties). Even if the right of set-off is not contingent on a future event, it may only be legally enforceable in the normal course of business, or in the event of default, or in the event of insolvency or bankruptcy, of one or all of the counterparties. AG38B To meet the criterion in paragraph 42(a), an entity must currently have a legally enforceable right of set-off. This means that the right of set-off: (a) must not be contingent on a future event; and (b) must be legally enforceable in all of the following circumstances: (i) the normal course of business; (ii) the event of default; and (iii) the event of insolvency or bankruptcy of the entity and all of the counterparties. AG38C The nature and extent of the right of set-off, including any conditions attached to its exercise and whether it would remain in the event of default or ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a securities transfer or similar system (for example, delivery versus payment), so that if the transfer of securities fails, the processing of the related receivable or payable for which the securities are collateral will also fail (and vice versa); (e) any transactions that fail, as outlined in (d), will be re-entered for processing until they are settled; (f) settlement is carried out through the same settlement institution (for example, a settlement bank, a central bank or a central securities depository); and (g) an intraday credit facility is in place that will provide sufficient overdraft amounts to enable the processing of payments at the settlement date for each of the parties, and it is virtually certain that the intraday credit facility will be honoured if called upon. AG39 The Standard does not provide special treatment for so-called synthetic instruments , which are groups of separate financial instruments acquired and held to emulate the characteristics of another instrument. For example, a floating rate long-term debt combined with an interest rate swap that involves receiving floating payments and making fixed payments synthesises a fixed rate long-term debt. Each o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntext. However, in order to maintain consistency with paragraph numbers of IAS 32, these paragraph numbers are retained in Ind AS 32. ] 3. Different terminology is used, as used in existing laws e.g.,the term balance sheet is used instead of Statement of financial position and Statement of profit and loss is used instead of Statement of comprehensive income . 4. Requirements regarding presentation of dividends classified as an expense in the separate income statement, where separate income statement is presented, have been deleted. This change is consequential to the removal of option regarding two statement approach in Ind AS 1. Ind AS 1 requires that the components of profit or loss and components of other comprehensive income shall be presented as a part of the statement of profit and loss. 5. The following paragraph numbers appear as Deleted in IAS 32. In order to maintain consistency with paragraph numbers of IAS 32, the paragraph numbers are retained in Ind AS 32: (i) paragraph 1 15 [ (ii) paragraph 4(c) (e) ] (iii) paragraphs 5-7 (iv) paragraphs 51-95 (v) AG24 of Appendix A (vi) AG38 of Appendix A 6. Following references to Illustrative Examples which are not integral part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuted vide NOTIFICATION No. [F. No. 01/01/2009-CL-V-(Part VII)] dated 30-03-2019 w.e.f. 01-04-2019 before it was read as AG9 Under Ind AS 17, Leases, a finance lease is regarded as primarily an entitlement of the lessor to receive, and an obligation of the lessee to pay, a stream of payments that are substantially the same as blended payments of principal and interest under a loan agreement. The lessor accounts for its investment in the amount receivable under the lease contract rather than the leased asset itself. An operating lease, on the other hand, is regarded as primarily an uncompleted contract committing the lessor to provide the use of an asset in future periods in exchange for consideration similar to a fee for a service. The lessor continues to account for the leased asset itself rather than any amount receivable in the future under the contract. Accordingly, a finance lease is regarded as a financial instrument and an operating lease is not regarded as a financial instrument (except as regards individual payments currently due and payable). AG10 Physical assets (such as inventories, property, plant and equipment), leased assets and intangible assets (such as patents and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght or the requirement to satisfy a contractual obligation may be absolute, or it may be contingent on the occurrence of a future event. For example, a financial guarantee is a contractual right of the lender to receive cash from the guarantor, and a corresponding contractual obligation of the guarantor to pay the lender, if the borrower defaults. The contractual right and obligation exist because of a past transaction or event (assumption of the guarantee), even though the lender s ability to exercise its right and the requirement for the guarantor to perform under its obligation are both contingent on a future act of default by the borrower. A contingent right and obligation meet the definition of a financial asset and a financial liability, even though such assets and liabilities are not always recognised in the financial statements. Some of these contingent rights and obligations may be insurance contracts within the scope of Ind AS 104. 14. Substituted vide Notification No. G.S.R. 492 (E) dated 12-08-2024 before it was read as, AG36 An entity s own equity instruments are not recognised as a financial asset regardless of the reason for which they are reacquired. Paragraph 33 re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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