Presentation of Financial Instruments (Ind AS 32) Meaning

Objective of IAS 32

The stated objective of IAS 32 is to establish principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and liabilities. [IAS 32.1]

IAS 32 addresses this in a number of ways:

• Clarifying the classification of a financial instrument issued by an entity as a liability or as equity
• Prescribing the accounting for treasury shares (an entity’s own repurchased shares)
• Prescribing strict conditions under which assets and liabilities may be offset in the balance sheet.

Parties to Financial Instruments: In case of Financial Instruments, the two parties are called:

• Issuer of an Instrument who presents it on the Liability side of the Balance Sheet as per Schedule III- Division II.
• Holder of an Instrument who presents it on the Asset side of the Balance Sheet as per Schedule III- Division II.

An analysis of Schedule III- Division II gives us an insight as under:

1. Asset segregated into non-current and current; further segregated in terms on non-financial and financial in nature.
2. Liability is segregated into Equity and Liability; liabilities are split in terms of non-current and current and further segregated in terms of non-financial and financial in nature.

IAS 32 applies in presenting and disclosing information about all types of financial instruments with the following exceptions: [IAS 32.4]

• Interests in subsidiaries, associates and joint ventures that are accounted for under IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates or IAS 31 Interests in Joint Ventures (or, for annual periods beginning on or after 1 January 2013, IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures). However, IAS 32 applies to all derivatives on interests in subsidiaries, associates, or joint ventures.
• Employers’ rights and obligations under employee benefit plans (see IAS 19 Employee Benefits)
• Insurance contracts (see IFRS 4 Insurance Contracts). However, IAS 32 applies to derivatives that are embedded in insurance contracts if they are required to be accounted separately by IAS 39
• Financial instruments that are within the scope of IFRS 4 because they contain a discretionary participation feature are only exempt from applying paragraphs 15-32 and AG25-35 (analysing debt and equity components) but are subject to all other IAS 32 requirements
• Contracts and obligations under share-based payment transactions (see IFRS 2 Share-based Payment) with the following exceptions:
• This standard applies to contracts within the scope of IAS 32.8-10 (see below)
• Paragraphs 33-34 apply when accounting for treasury shares purchased, sold, issued or cancelled by employee share option plans or similar arrangements