Unit 1: Ind AS 32: Financial Instruments (Presentation)
Chapter 12
809
The entire definition of ‘financial liability’ has been set up as under in Paragraph 11 of Ind AS 32:
Definition of Financial Liability Point (a) Clause (i)
To deliver cash/another Financial Asset
Clause (ii)
Exchange under conditions potentially unfavourable
Point (b) Clause (i) NonDerivative Failure of 'Fixed Test'
Clause (ii)
Derivative Failure of 'Fixed for Fixed Test'
Clarifications: Clarification I Rights, option, warrants Clarification II (Carve out) FCCB (Foreign currency convertible bonds) Clarification III Equity Instruments not to include 'Deemed Equity Instruments'
Aspect 1: Any Liability: It will include: 1. 2. 3. 4.
Actual liability. Contingent liability. (Though there is Ind AS 37 dealing with the same; See discussion in scope later for more understanding) Derivative liability. Non-derivative liability.
Aspect 2: Contractual obligation: There has to be an obligation which is contractual in nature. For example: Income tax to be paid to government is an obligation but not contractual in nature. It is statutory in nature; therefore, would not be a financial liability. Aspect 3: Ways in which the contractual obligation is discharged:
