IAS 32 - Financial Instruments Summary

IAS 32 – FINANCIAL INSTRUMENTS

a) During life of instrument

DIVIDENDS

1. Non-discretionary dividend
- Compulsory dividend
- Issuer cannot avoid these payments – contractual obligation to deliver cash
- Thus: financial liability

2. Discretionary dividend
- Issuer must declare div – to create liability – at choice of directors
- No obligation to deliver cash – so no fin liab
- Thus: equity

INTEREST

1. Compulsory
- Timing and rate – stipulated in contract
- Compulsory interest payments = financial liability

2. Non-compulsory
- Issuer – no obligation to pay interest or deliver cash
- Thus: equity


b) End of life of instrument

REDEMPTION
Def: instrument where capital will be repaid – at end of its life

1. Redemption at option of holder
- Holder can decide – thus issuer cannot opt out of paying
- Obligation to deliver cash
- Thus:

2. Compulsory Redemption
- Issuer has obligation to deliver cash
- Thus: financial liability