📖 Overview
This standard establishes principles for presenting financial instruments as liabilities or equity, and for offsetting financial assets and liabilities. It clarifies the difference between a debt instrument (contractual obligation to deliver cash) and an equity instrument (residual interest in assets).
🎯 Scope
This standard applies to the presentation of financial instruments as liabilities or equity, and to the offsetting of financial assets and liabilities. It does not cover measurement or recognition of financial instruments (covered by IFRS 9).
⚙️ Key Principles
1. **Classification of Financial Instrument**: Classified as a financial liability or equity based on the substance of the contract, not its legal form.
2. **Financial Liability**: A contractual obligation to deliver cash or another financial asset.
3. **Equity**: A residual interest in the entity's assets after deducting all liabilities.
4. **Treasury Shares**: Shares repurchased by the entity are deducted from equity and are not considered an asset.
📏 Measurement
**Financial Instruments Classified as Liabilities:** Measured under IFRS 9.
**Financial Instruments Classified as Equity:** Measured at the amount received (net of issuance costs).
**Treasury Shares:**
- The cost of repurchasing shares is deducted from equity.
- No gain or loss from treasury share transactions is recognized in the income statement.
- The difference between sale price and purchase cost is added to additional paid-in capital.
✅ Recognition
A financial instrument is recognized when acquired or issued.
Dividends on shares classified as equity are not recognized as an expense, but as a distribution of retained earnings.
Dividends on instruments classified as liabilities are recognized as interest expense.
📊 Presentation
**On the Statement of Financial Position:**
- Instruments classified as liabilities appear within liabilities.
- Instruments classified as equity appear within equity.
- Treasury shares appear as a deduction from equity.
**On the Income Statement:**
- Interest on instruments classified as liabilities appears within financing expenses.
- Dividends on ordinary shares appear in the statement of changes in equity.
📝 Disclosure Requirements
Disclosures required:
- Accounting policies for financial instruments.
- Reasons for classifying an instrument as liability or equity.
- Terms and conditions of financial instruments.
- Number of shares issued and par value.
- Treasury share movement.
- Rights and obligations of each share class.
🔗 Related Standards
IFRS 9 (Financial Instruments), IFRS 7 (Disclosures), IAS 1 (Presentation of Financial Statements)