FINANCIAL INSTRUMENTS THIRD YEAR ACCOUNTING. Study guide.
Prior You should already be able to:
learning for this
unit
• Regarding investments in shares:
• Define a rights issue and a capitalisation issue
• Describe the different methods by which the profit or loss on sale of shares may be
determined
• Do the journals entries as well as the ledger accounts for investments in shares
• Present investments in shares in the financial statements of the investor and disclose
it in the notes
• Regarding investments in government gilts and bonds:
• Do the journal entries as well as the ledger accounts for
investments in government gilts
• Test the correctness of the interest on the government gilts
• Present investments in government gilts in the financial
statements of the investor and disclose it in the notes
• Regarding the issue of debentures:
• Explain the following:
- the term debenture and the characteristics of debentures
- the classification of debentures
- the various methods of redemption of debentures.
• Calculate the internal rate of return
• Do the journal entries as well as the ledger accounts with regard to the issue of
debentures according to the various conditions
• Do the journal entries as well as the ledger accounts relating to interest paid
• Do the journal entries as well as the ledger accounts with regard to the redemption of
debentures
• Present debentures as a liability in the financial statements of the issuer and disclose
it in the notes
2
,Unit 24 Financial Instruments
Outcomes This topic deals with the identification, recognition, measurement, presentation and
for this unit disclosure of all kinds of financial instruments. Derivatives are also a financial instrument
and is used either for speculative purposes, or to reduce exposure to certain financial risks.
In Accounting IIIA the focus was on forward exchange contracts (FEC’S) which is a
derivative and also a financial instrument. The focus in this unit is going to be on primary
financial instruments by focusing on IAS 32 and IFRS 9.
The material in this learner guide represents a summary of the broad principles outlined in
IAS 32 Financial Instruments - Presentation and IFRS 9 Financial instruments. In order to
gain a complete understanding of Financial Instruments, students should use this learner
guide in conjunction with the more detailed explanations included in the prescribed text
books.
After studying this unit learners should be able to:
• identify and set out the objectives of IAS 32 and IFRS 9 and the scope for applying
them
• identify primary financial instruments and apply them to practical examples
• classify an instrument issued by an entity as a financial liability or equity of the entity
in accordance with IAS 32
• separate and account (recognise and measure) for the components of a compound
financial instrument between the equity and the financial liability portions
• know how to account (recognise and measure) for interest, gains, losses and
dividends relating to a financial instrument
• classify financial assets and financial liabilities in accordance with IFRS 9
• account (recognise and measure) for a financial asset, particularly in respect of:
initial recognition (when)
initial measurement (amount) and
subsequent measurement (re-measurement)
• account (recognise and measure) for a financial liability, particularly in respect of:
initial recognition (when)
initial measurement (amount) and subsequent measurement (re-
measurement)
• account for the derecognition of:
financial assets and
financial liabilities
• recognise gains and losses on the re-measurement of financial assets and financial
liabilities
• understand basic principles relating to impairment of financial assets
• present financial assets as an asset in the financial statements of the investor and
disclose it in the notes
• present financial liabilities as a liability in the financial statements of the issuer and
• discuss all aspects of primary financial instruments in brief discussion questions.
3 Literature • Revise Accounting 2B learning guides the following:
- Financial instruments (in general)
- Investment in shares
, Unit 24 Financial Instruments
- Investment in government gilts
- Debentures
• IAS 32 : Financial instruments: Presentation
South African Institute of Chartered Accountants
Study only the following paragraphs:
par 11 - financial instrument
- financial asset
- financial liability
- equity instrument
- fair value
par 15 - 20
par 28 – 32
par 35 – 41
par
42
• Revise Accounting 2B Identification, classification, initial measurement and
subsequent measurement of financial instruments in terms of IAS 32 and IFRS 9
• Introduction to IFRS Sixth Edition
ZR Koppeschaar
J Rossouw
HA van Wyk
J Sturdy
FF Gaie-Booysen
K Papageorgiou
C Smith
CM van der Merwe
A Schmulian
IAS 32 /IFRS 9: Financial Instruments pg 425
– Excluding Derivatives and hedge accounting (covered in Semester 1)
• IFRS Applications – Third Edition
ME Pietersen
N Stegmann
CJ van Schalkwyk
N Wesson M
Malan
IAS 32 /IFRS 9: Financial Instruments pg 77
4
Prior You should already be able to:
learning for this
unit
• Regarding investments in shares:
• Define a rights issue and a capitalisation issue
• Describe the different methods by which the profit or loss on sale of shares may be
determined
• Do the journals entries as well as the ledger accounts for investments in shares
• Present investments in shares in the financial statements of the investor and disclose
it in the notes
• Regarding investments in government gilts and bonds:
• Do the journal entries as well as the ledger accounts for
investments in government gilts
• Test the correctness of the interest on the government gilts
• Present investments in government gilts in the financial
statements of the investor and disclose it in the notes
• Regarding the issue of debentures:
• Explain the following:
- the term debenture and the characteristics of debentures
- the classification of debentures
- the various methods of redemption of debentures.
• Calculate the internal rate of return
• Do the journal entries as well as the ledger accounts with regard to the issue of
debentures according to the various conditions
• Do the journal entries as well as the ledger accounts relating to interest paid
• Do the journal entries as well as the ledger accounts with regard to the redemption of
debentures
• Present debentures as a liability in the financial statements of the issuer and disclose
it in the notes
2
,Unit 24 Financial Instruments
Outcomes This topic deals with the identification, recognition, measurement, presentation and
for this unit disclosure of all kinds of financial instruments. Derivatives are also a financial instrument
and is used either for speculative purposes, or to reduce exposure to certain financial risks.
In Accounting IIIA the focus was on forward exchange contracts (FEC’S) which is a
derivative and also a financial instrument. The focus in this unit is going to be on primary
financial instruments by focusing on IAS 32 and IFRS 9.
The material in this learner guide represents a summary of the broad principles outlined in
IAS 32 Financial Instruments - Presentation and IFRS 9 Financial instruments. In order to
gain a complete understanding of Financial Instruments, students should use this learner
guide in conjunction with the more detailed explanations included in the prescribed text
books.
After studying this unit learners should be able to:
• identify and set out the objectives of IAS 32 and IFRS 9 and the scope for applying
them
• identify primary financial instruments and apply them to practical examples
• classify an instrument issued by an entity as a financial liability or equity of the entity
in accordance with IAS 32
• separate and account (recognise and measure) for the components of a compound
financial instrument between the equity and the financial liability portions
• know how to account (recognise and measure) for interest, gains, losses and
dividends relating to a financial instrument
• classify financial assets and financial liabilities in accordance with IFRS 9
• account (recognise and measure) for a financial asset, particularly in respect of:
initial recognition (when)
initial measurement (amount) and
subsequent measurement (re-measurement)
• account (recognise and measure) for a financial liability, particularly in respect of:
initial recognition (when)
initial measurement (amount) and subsequent measurement (re-
measurement)
• account for the derecognition of:
financial assets and
financial liabilities
• recognise gains and losses on the re-measurement of financial assets and financial
liabilities
• understand basic principles relating to impairment of financial assets
• present financial assets as an asset in the financial statements of the investor and
disclose it in the notes
• present financial liabilities as a liability in the financial statements of the issuer and
• discuss all aspects of primary financial instruments in brief discussion questions.
3 Literature • Revise Accounting 2B learning guides the following:
- Financial instruments (in general)
- Investment in shares
, Unit 24 Financial Instruments
- Investment in government gilts
- Debentures
• IAS 32 : Financial instruments: Presentation
South African Institute of Chartered Accountants
Study only the following paragraphs:
par 11 - financial instrument
- financial asset
- financial liability
- equity instrument
- fair value
par 15 - 20
par 28 – 32
par 35 – 41
par
42
• Revise Accounting 2B Identification, classification, initial measurement and
subsequent measurement of financial instruments in terms of IAS 32 and IFRS 9
• Introduction to IFRS Sixth Edition
ZR Koppeschaar
J Rossouw
HA van Wyk
J Sturdy
FF Gaie-Booysen
K Papageorgiou
C Smith
CM van der Merwe
A Schmulian
IAS 32 /IFRS 9: Financial Instruments pg 425
– Excluding Derivatives and hedge accounting (covered in Semester 1)
• IFRS Applications – Third Edition
ME Pietersen
N Stegmann
CJ van Schalkwyk
N Wesson M
Malan
IAS 32 /IFRS 9: Financial Instruments pg 77
4
