IFRA2011_Tutorial week 10-1. Financial Instruments and Foreign Currency Transactions1

IFRA2011_Tutorial - 1 THE UNIVERSITY OF NEW SOUTH WALES Australian School of Business ACCT 3563 Issues in Financial Reporting& Analysis

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Unformatted text preview: 1 THE UNIVERSITY OF NEW SOUTH WALES Australian School of Business ACCT 3563: Issues in Financial Reporting & Analysis Accounting for Financial Instruments and Foreign Currency Transactions Learning Objectives: 1. Understand what is a financial instrument, and how can they be categorised. 2. Accounting for a particular type of financial instrument – a “compound instrument” 3. Understand the accounting treatments of foreign currency transactions at: x Date of transaction; x Balance date (if applicable); x Settlement date. 4. Analyse the accounting treatment of foreign exchange differences by reference to the conceptual framework TUTORIAL - WEEK 10 2 Part A. Basic Concepts A1. Question from Picker, Chapter 6 Question 5 Describe the main risks that pertain to financial instruments (LO 1) Table 6.4 3 A2. Questions from Deegan, Chapter 15 Question 1 Define ‘financial instrument’ (LO 1) AASB 132 ‘Financial Instruments: Disclosure and Presentation’ defines a financial instrument as any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity. Such a definition, in turn, generates a need to define a financial asset; a financial liability; and, an equity instrument. According to paragraph 11 of AASB 132, ‘financial asset’ means any asset that is: (a) cash; (b) an equity instrument of another entity; (c) a contractual right: (i) to receive cash or another financial asset from another entity; or (ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; or (d) 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 receive 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 the entity’s own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery of the entity’s own equity instruments. A financial liability, on the other hand, means 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 the entity’s own equity instruments own equity instruments....
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This note was uploaded on 07/13/2011 for the course ACCT 2522 at University of New South Wales.

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IFRA2011_Tutorial - 1 THE UNIVERSITY OF NEW SOUTH WALES Australian School of Business ACCT 3563 Issues in Financial Reporting& Analysis

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