QUESTION

Part 1

Company X is evaluating whether each of these items is a financial instrument and whether it should be accounted for under IAS 32

(1) Cash deposited in banks.

(2) Trade accounts receivable.

(3) Investment in debt instruments.

(4) Investment in equity instruments where company X doesn't have significant influence over the investee.

(5) Pre-paid expenses.

(6) Provision for estimated liquidation losses.

(7) Issued debt instruments.

Required-

Help Company X to determine

i) Which of the above items meet the definition of a financial instrument and

ii) Which of the above items fall within the scope of IAS 32

Part 2

During 2008, entity A issued a number of financial instruments. It is evaluating how each of these instruments should be presented under IAS 32

a. A perpetual bond (i.e. a bond that doesn't have a maturity date) that pays 5% interest each year

b. A mandatory redeemable share with a fixed redemption amount (that is a share that will be redeemed by the entity at a future date)

c. A share that is equivalent at the option of the holder for a fixed amount of cash

Required-

For each of the above instruments, discuss whether it should be classified as a financial liability and, if so, why?