FINANCIAL INSTRUMENTS

IAS 32, IFRS 7 and IFRS

9
1

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2 INTRODUCTION

The relevant IASs/IFRSs are:

IFRS 9 Financial Instruments: Recognition and
Measurement
IAS 32 Financial Instruments: Presentation

IFRS 7 Financial Instruments: Disclosures

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 Financial instruments: definitions
3

Financial Instrument:
 Any contract that gives rise to both a Financial Asset of one
entity and a Financial Liability or Equity Instrument of another
entity.
Financial
Assets

Instruments
Financial

Financial
Liabilities
Equity
Instrument

Derivatives
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4
Financial instruments: definitions
Financial Asset is any asset that is:
• cash
• a contractual right to receive cash or another financial asset,
 Examples of Financial Assets:
 Trade Receivables
 Loan Receivables
 Investments in bonds, treasure bills, etc.
 Investment in shares

Monday, May 12
, 2025
 Financial instruments: definitions
5

Financial liability: is any liability that is:

a contractual obligation:
 to deliver cash or another financial asset to
another entity.
 Examples of Financial liabilities:
 Trade payables
 loan payable
 Bonds payable
 Preference shares with mandatory redemption date at fixed or
determinable amount or with compulsory dividend
Monday, May 12
, 2025
6 Financial instruments: definitions
Equity instrument
This is any contract that evidences a residual
interest in the assets of an entity after deducting
all of its liabilities.

Monday, May 12
, 2025
7 Equity instrument or financial liability?
 A financial instrument should be classified as
either an equity instrument or a financial
liability according to the substance of the
contract, not its legal form.

 An entity must make this decision at the time

the instrument is initially recognised and the
classification cannot be subsequently revised
based on changed circumstances
 Equity instrument or financial liability
8
A financial instrument is an equity instrument only if:
 the instrument includes no contractual obligation to
deliver cash or another financial asset to another entity
If an instrument has terms such that there is an obligation on
the enterprise to transfer financial assets to redeem the
obligation then it is a liability instrument regardless of its
legal nature.
Preference shares are the main instrument where in
substance they could be liabilities but legally are equity.
For a preference shares to be treated as a liability:
annual dividends are compulsory
the share provides for mandatory redemption by the issuer at a fixed
or determinable amount at a future fixed or determinable date
the share gives the holder the option to redeem upon the occurrence
of a future event that is highly likely to occur
 Exercise: Are the following equity or financial liability?
9
a. An entity has 200,000, 10% Br10 preference shares in
issue. The shares are redeemable in five years at a
premium of Br5
b. An entity issued 10,000, 8% Br100 perpetual preference
shares. Dividends are payable only if declared by BOD.
c. An entity entered into a zero coupon loan (i.e. interest and
principal repayments deferred until maturity) for
Br400,000. No interest is payable during the term of the
loan but the loan is repayable after 5 years at Br540,000.
d. An entity has to pay Company Z Br1,000,000 on 31
December 2015 by issuing its own shares. The number of
shares that it has to issue on 31 December 2015 will
depend upon its share price on that date.
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10
MEASUREMENT OF FINANCIAL ASSETS
In accordance with IFRS 9, financial assets may be
classified under the following three headings:
[Link] assets measured at FVTPL
[Link] assets measured at amortised cost
[Link] assets measured at fair value through other
comprehensive income (FVTOCI)

• Classification criteria:
[Link] entity's business model for managing its financial
assets; and
[Link] contractual cash flow characteristics of the financial
asset.
Monday, May 12
, 2025
11 Business models
Held to collect: The entity’s objective is to hold the
asset (or portfolio of assets) to collect the
contractual cash flows.
Held to collect & sell: An entity holds financial assets
in order to achieve a particular objective by both
collecting contractual cash flows and selling financial
assets.
Other business model: A financial asset or group of
financial assets is not held within the hold to collect
or the hold to collect and sell business model (e.g.
exclusively for sale) Monday, May 12
, 2025
12 Exercises
1. Your bank has Br10 million of idle cash. It has not
yet found another suitable investment opportunity
in which to invest those funds so it buys short dated
(6 month maturity) treasury bills in order to
generate interest income. It is not considered likely
but, if a suitable investment opportunity arises
before the maturity date, it will sell the bills and use
the proceeds for the acquisition of other company
shares. Otherwise it will hold the bills to their
maturity. Which business model does the bank use?

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 Exercises
13 2. Your bank has Br50 million idle cash. It has
not yet found another suitable investment
opportunity in which to invest its funds so it
buys 5 year maturity government bonds in
order to generate interest income. It is
considered likely that a suitable investment
opportunity will be found before the maturity
date, and in that case the bank will sell the
bonds and use the proceeds for opening a
new branch. Otherwise it plans to hold the
bonds to their contractual maturity. Which
business model does the bank use?
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14 Exercises

3. An entity bought highly tradable bonds

of ABC S.C with interest rate of 12% and
5 years maturity. It bought these bonds
to sell them when market price
increases. Which business model does
the entity use?

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 Contractual cash flow characteristics
 Whether the contractual cash flows are solely
payments of principal and interest (SPPI) or not.
 Principal = amount transferred by holder (fair value
at initial recognition)
 Interest is consideration for:
 time value of money and credit risk;
 other lending risks (for example, liquidity risk);
 other associated costs (for example,
administrative costs); and
 a profit margin
 Exercises
16

1. Your bank provides a loan of Br10 million to its

employees. The loan has the following terms:
 No interest
 Repayable in three years.
Does the loan meet the ‘SPPI’ contractual cash flows
characteristic test?

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 17 Exercises
2. Your bank lends Entity E Br500 million for five
years at interest rates of 10%. Entity E is a
property developer that will use the funds to buy a
piece of land and construct residential apartments
for sale. In addition to the 10% interest, the bank
will be entitled to an additional 15% of the final net
profits from the project. Does the loan meet the
‘SPPI’ contractual cash flows characteristic test?

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 18 Exercises
3. Your bank lends Company J Br50 million at a fixed
interest rate of 8%. The loan is repayable in five
years. If Company J misses two interest payments,
the interest rate is reset to 15%. Question: Does the
loan meet the SPPI contractual cash flows
characteristic test?

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 Classification of financial assets
19
Business
Business
model = Other
model =
hold to business
hold to
collect and model
collect
sell

Cash flows are

solely payments Amortised
cost FVTOCI FVTPL
of principal and
interest (SPPI)

Other types of FVTPL FVTPL

FVTPL
cash flows

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20 1. Financial assets measured at FVTPL
 Initially & subsequently measured at fair value
 Transaction costs: expensed
 Gain or loss from fair value change: in profit/loss
 For both debt and equity instruments

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21 Exercise

 On Hamle 1, 2011, an entity acquired for cash

1,000 held for trading shares at Br2,000 each and
incurred transaction costs of Br50,000. At the
year-end Sene 30, 2012, the quoted price
increases to Br2,600. It sells the shares at Br3.1
million on Hamle 30, 2012.
Prepare journal entries to record the above
transactions

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 Example : Financial asset at FVTPL
On Hamle 1, 2008, an entity acquired for cash 1,000 held for trading
bonds at Br2,000 each and incurred transaction costs of Br50,000. At
the year end Sene 30, 2009, the quoted price increases to Br2,600. It
sells the bonds at Br3.1 million on Hamle 30, 2009.

Initial recognition:

22
Financial assets at FVTPL 2,000,000
Bond acquisition cost (P/L) 50,000
Cash 2,050,000

Sene 30, 2009:

Financial assets at FVTPL 600,000
Gain in FV of Financial assets– P/L 600,000

Hamle 30, 2009:

Cash 3,100,000
Financial assets at FVTPL 2,600,000
Gain on sale of financial assets– P/L 500,000
23 2. Financial assets measured at amortised cost

 Only for debt instruments

 Business model – held to collect
 Cash flow characteristics - SPPI
 Initially at cost and subsequently at amortized cost
 Uses effective interest method
 Financial Assets carried at amortised cost are
subject to an annual impairment test. Any
impairment identified must be charged in full in P/L

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 Exercises
24 1. Your bank purchased a five-year bond with par value of Br5
million on 1 January 2019 at a price of Br4.79 million with
annual interest of 5.2% payable on 31 December annually. It
incurred transaction costs of Br50,000. At the reporting date
of 31 December 2019 interest has been received as expected
and the market rate of interest is now 7%.
Required
a. Calculate the effective interest rate on similar types of
bonds on January 1, 2019.
b. Prepare the journal entries to be made on January 1, 2019
and December 31, 2019 using amortized cost model.
c. Prepare the journal entries to be made on January 1, 2019
and December 31, 2019 using FVTPL model.

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 Exercises
2. On Hamle 1, 2011, your bank gives non-
interest bearing loan to its employees as per
the following terms:
 Loan Amount: Br900,000
 The loan is to be paid in 3 years (Br300,000
25
per year)
 ABC desires 10% interest on similar risk loans
Required: Compute the amortized cost amount
to be reported in the Statement of financial
position at the end of each year
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 3. Financial assets measured at FVTOCI
26

 Can be used for both debt and equity instruments.

 A debt instrument that meets the following two
conditions must be measured at FVTOCI
 Business model: Held to collect and sell
 Cash flow characteristics: Cash flows are solely payments of
principal and interest
 If an equity investment is not held for trading, an entity
can make an irrevocable election at initial recognition
to measure it at FVTOCI with only dividend income
recognized in profit or loss.

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27 Financial assets measured at FVTOCI

 Initial Measurement: financial assets to be

held at FVTOCI are initially recognized at fair
value plus transaction costs.
 Transaction costs include costs that are
directly attributable to the acquisition of the
financial asset.

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28 Subsequent measurement of financial asset measured at
FVTOCI (debt instruments)

Statement of Other
financial Profit or loss Comprehensive
position Income
Interest revenue using
Fair value change other
effective interest method
than those recognized in
profit or loss
Impairment for credit
Fair value
losses
(amounts accumulated
are recycled to P&L upon
Foreign exchange gains
derecognition)
& losses

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 Exercise

29  DBE bought bonds for Br100 million on December 15, 2018

and measured them at FVTOCI. The bonds have fixed interest
rate of 5% over contractual term of 10 years. The effective
interest rate on the date of acquisition was also 5%.
 On December 31, 2018 (the reporting date), the FV of the
bonds was decreased to Br95 million as a result of changes in
market interest rates. DBE determines that there has not
been a significant increase in credit risk since initial
recognition and that expected credit losses should be
measured at an amount equal to 12-month expected credit
losses (ECL), which amounts to Br3 million.
 On January1, 2019, it sells the bonds for Br95 million, which is
the FV at that date.

 Prepare journal entries to record the above transactions

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 Example : Subsequent measurement of financial asset
30
(debt instrument measured at FVOCI)

Debit Credit
Financial asset – FVTOCI Br100m

Cash Br100m
To recognise the debt instrument measured at its fair value

Debit Credit
Impairment loss (profit or loss) Br3m

Change in Value of Financial assets (OCI) Br2m

Financial asset - FVOCI Br5m

To recognise fair value changes

 Example : Subsequent measurement of financial asset
31
(debt instrument measured at FVOCI)

Debit Credit
Cash Br95m

Loss in value of financial assets (P/L) Br2m

Financial asset - FVOCI Br95m

Change in Value of Fin Assets (OCE) 2m

To recognise The sell of bonds at Br 95m

 Subsequent measurement of financial asset
32 FVTOCI (investments in equity instruments)

Statement of
Other Comprehensive
financial Profit or loss
Income
position
Changes in fair value and
foreign exchange
component
Fair value Dividends
(amounts accumulated
never recycled to P&L →
may be transferred within
equity)

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 Exercise
33
 Your bank has a 30 June financial year end. On 1 July 2018, it
acquires 2,500 shares of Company Z for Br20 million with
transaction costs of Br100,000 directly attributable to the
acquisition of the instrument. If the asset was sold, a
commission of Br120,000 would be incurred.
 On 30 June 2019, the fair value of the 2,500 shares in
Company Z has declined to Br18 million and your bank
receives cash dividend of Br3 million.
 On 30 June 2020, the fair value of the 2,500 shares in
Company Z has increased to 25 million and your bank
decides to dispose of the entire investment at its fair value
on July 1, 2020.
Required: prepare the necessary journal entries in 2018, 2019
and 2020
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 Example : Subsequent measurement of financial asset
34
(debt instrument measured at FVOCI)
Debit Credit
Financial Assets - FVTOCI 20.1m

Cash 20.1m
To recognize purchase of the shares on July 1, 2018
Change in value of Financial Assets (OCI) 2.1m
Financial Assets - FVTOCI 2.1m
To restate Fin Assets at FV through OCI on June 30, 2019
Cash 3m
Dividend Income – P/L 3m
To recognize dividend income on Fin assets held at OCI on June 30, 2019
 Example : Subsequent measurement of financial asset
35
(debt instrument measured at FVOCI)
Debit Credit
Financial Assets - FVTOCI 7m

Change in Value of Financial Assets (OCI) 7m

To restate Fin Assets at FV through OCI on June 30, 2020
Change in value of Financial Assets (OCE) 4.9m
Cash 25m
Financial Assets - FVTOCI 25m
Retained Earnings 4.9m
To Recognize disposal of Fin Asset held at OCI on July 1, 2020
 Reclassification of financial assets
36

 If the entity’s business model objective for its financial assets

changes
 It must be done prospectively from the reclassification date.
Examples
1. Your bank has a portfolio of commercial loans that it holds to sell in the short
term. It acquires a company that manages commercial loans and has a
business model that holds the loans in order to collect the contractual cash
flows. The portfolio of commercial loans is no longer for sale, and the portfolio
is now managed together with the acquired commercial loans and all are held
to collect the contractual cash flows.
2. Your bank decides to shut down its retail mortgage business. It no longer
accepts new business and the bank is actively marketing its mortgage loan
portfolio for sale.

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 Derecognition of a financial asset
37
 Once an entity has determined that the asset has been transferred, it then
determines whether or not it has transferred substantially all of the risks and
rewards of ownership of the asset
 If substantially all the risks and rewards have been transferred, the asset is
derecognised
 If substantially all the risks and rewards have been retained, derecognition of the
asset is precluded
 If the entity has neither retained nor transferred substantially all of the risks and
rewards of the asset, then the entity must assess whether it has relinquished
control of the asset or not
 If the entity does not control the asset then derecognition is appropriate; however
if the entity has retained control of the asset, then the entity continues to
recognise the asset to the extent to which it has a continuing involvement in the
asset.
38 Derecognition of a financial asset
On derecognition of a financial asset in its
entirety:
the difference between carrying amount and
consideration received shall be recognised in profit or
loss
If transfer does not result in derecognition, keep
transferred asset on books and recognise
financial liability for the consideration received
 Do not offset
DERECOGNITION OF FINANCIAL ASSETS
39
Cases
1. Your bank sells an investment in shares, but retains the right to
repurchase the shares at any time at a price equal to their fair value on
the date of repurchase.
it should derecognise the asset.
2. Your bank sells an investment in shares and enters into an agreement
whereby the buyer will return any increases in value to the bank and the
bank will pay the buyer interest plus compensation for any decrease in
the value of the investment.
the bank should not derecognise the asset as it has retained
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substantially all the risks and rewards.

 DERECOGNITION OF FINANCIAL ASSETS
40

Cases

3. An entity sales its short-term receivables and it guarantees to compensate the

transferee for credit losses that are likely to occur.
the entity should not derecognise the asset as it has retained
substantially all the risks

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41 Impairment of financial assets
 IFRS 9 effectively incorporates an impairment review for
financial assets that are measured at fair value, as any fall
in fair value is taken to profit or loss or OCI in the period
(depending upon the classification of the financial asset)
 For financial assets designated to be measured at amortised
cost, an entity must make an assessment at each reporting
date whether there is evidence of possible impairment.
 For valuation at FVTOCI, the decrease in carrying amount
may be partially recorded as impairment.
 If impairment is identified, it is charged in arriving at profit
or loss immediately

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42 IFRS 9 Impairment Models
IFRS 9 establishes a three stage impairment
model, based on whether there has been a
significant increase in the credit risk of a financial
asset since its initial recognition.
These three stages then determine the amount of
impairment to be recognised as expected credit
losses (ECL) as well as the amount of interest
revenue to be recorded at each reporting date:

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 43 IFRS 9 Impairment Models
Stage 1: Credit risk has not increased significantly
since initial recognition – recognise 12 months ECL,
and recognise interest on a gross basis
Stage 2: Credit risk has increased significantly since
initial recognition – recognise lifetime ECL, and
recognise interest on a gross basis
Stage 3: Financial asset is credit impaired – recognise
lifetime ECL, and present interest on a net basis (i.e.
on the gross carrying amount less credit allowance).

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 12-month & lifetime expected credit losses
Definitions
44

Expected credit losses (ECL) - weighted average of credit losses with the respective
risks of a default occurring as the weights

What are 12-month ECL? What are lifetime ECL?

Portion of lifetime ECL representing

lifetime cash shortfalls that will result if a ECL that result from all possible default
default occurs in 12 months weighted by events over the expected life of a
probability of that default occurring financial instrument
45 Overview of the impairment requirements

Change in credit risk since initial recognition

Stage 1 Stage 2 Stage 3

Impairment recognition
12-month Lifetime Lifetime
expected credit losses expected credit losses expected credit losses

When significant increase in credit risk

occurs
Interest revenue

Gross basis Gross basis Net basis

‘Under-performing’
‘Performing’ ‘Non-performing’
(life-time expected
(12 month expected (lifetime expected loss)
loss)
loss) (rebuttable
(rebuttable
presumption = + 90 days
presumption =
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past due)
+30 days past due)
46 12-month vs lifetime expected credit losses
When to recognise
12-month expected credit losses are calculated by
multiplying the probability of a default occurring in the
next 12 months with the total (lifetime) expected credit
losses that would result from that default, regardless of
when those losses occur.
Therefore, 12-month expected credit losses represent a
financial asset’s lifetime expected credit losses that are
expected to arise from default events that are possible
within the 12 month period following origination of an
asset, or from each reporting date for those assets in
Stage 1.

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 Moving from stage 1 to stage 2
47
 The transition from Stage 1 to Stage 2 focuses on the
change in the risk of default during a period.
 A significant increase in credit risk (moving from Stage
1 to Stage 2) can include:
– Changes in general economic and/or market conditions (e.g.
expected increase in unemployment rates, interest rates)
– Significant changes in the operating results or financial position
of the borrower
– Changes in the amount of financial support available to an
entity (e.g. from its parent)
– Expected or potential breaches of covenants
– Expected delay in payment

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 Stage 3
48
Credit-impaired financial assets are those for which
one or more events that have a detrimental effect on
the estimated future cash flows have already occurred.
These financial assets would be in Stage 3 and lifetime
expected losses would be recognised.
Indicators that an asset is credit-impaired would
include observable data about the following events:
 Actual breach of contract (e.g. default or
delinquency in payments)
Granting of a concession to the borrower due to
the borrower’s financial difficulty
Probable that the borrower will enter bankruptcy
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 Example 1
49

 Your bank provides mortgages loans for customers

engaged in real estate business.
 The bank becomes aware of the declining profit of
real estate companies as a result of a number of
public statements and expects the closure of
several companies.
 Required:
 Identify the impairment stage the mortgage loans are in.
 How can your bank estimate the life time expected credit
loss?
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 Example 2

50
 In 2017, your bank originates a single 4-year, 12% loan for Br10 million. Taking into
consideration the expectations for instruments with similar credit risk, the credit risk of the
borrower, and the economic outlook for the next 12 months, your bank estimates that the loan
at initial recognition has a probability of default of 1% over the next 12 months.
 At the end of 2017, your bank determines that there was no significant increase in credit risk
since initial recognition. It determines that 25% of the gross carrying amount will be lost if the
loan defaults.
 On 31 December 2018, the borrower is expected to have cash flow problems due to
deterioration in economic conditions.
 On 31 December 2019, the loan is extended for another three years because the borrower
does not have enough cash to repay the loan on December 31, 2020. The life time expected
credit loss is revised as 45%.
 In 2020, the bank recovered Br4 million from sale of collateral and does not anticipate any
collection of additional cash for the deficit.
 Determine the amount of impairment loss and interest revenue to be recognized at the end of
each year.

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 Simplified Impairment Approach
51

An entity shall always measure the loss allowance at an

amount equal to lifetime expected credit losses for:(No need
of applying a 3-stage impairment model )
a) For trade receivables or contract assets that result from
transactions that are within the scope of IFRS 15
 That do not contain significant financing component, or
 That contain financing component but the entity chooses as its accounting
policy to measure the loss allowance at an amount equal to lifetime expected
credit losses.
b) For lease receivables that result from transactions that are within
the scope of IFRS 16, if the entity chooses as its accounting policy
to measure the loss allowance at an amount equal to lifetime
expected credit loss.
The simplified approach does not apply to intercompany loans.
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Example:
An entity holds trade receivables of Br 30,000,000 that do not have a
significant financing component. In order to determine the amount of
ECL to be recognized in the financial statements, it has set up a
provision matrix based on its historical observed default rates which
is adjusted for forward-looking estimates and establishes that ECL
should be calculated as:
non-past due (15 million): 0.3% of carrying value
52
1-30 days past due (7.5 million): 1.6% of carrying value
31-60 days past due (4 million): 3.6% of carrying value
61-90 days past due (2.5 million): 6.6% of carrying value
more than 90 days past due (1 million): 10.6% of carrying value

Calculate the ending balance of Provision for Doubtful Debts and bad debt expense for
the year. Assume Provision for Doubtful Debts has credit balance of Br36,000 before
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adjustment.
 Solution
Provision for Doubtful Debts can be calculated as follows:
(using simplified impairment approach)
Gross Life time Lifetime ECL
carrying Expected allowance
amount Default Rate (Gross carrying
(Birr) amount
x lifetime ECL rate)
(Birr)
Current 15,000,000 0.3% 45,000
1-30 days 7,500,000 1.6% 120,000
past due
31-60 days 4,000,000 3.6% 144,000
past due
61-90 days 2,500,000 6.6% 165,000
past due
MoreAAUSC
than 90
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1,000,000 10.6% 106,000
days past due
53
 FINANCIAL LIABILITIES

54

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 MEASUREMENT OF FINANCIAL LIABILITIES
55
Measurement methods

1. Financial liabilities measured at FVTPL

• Held for trading financial liabilities

2. Financial liabilities measured at amortized

cost
• For most financial liabilities
• Initial measurement: at transaction price less
transaction cost
• Subsequent measurement: initial value + accrued
interest +/- discount/premium amortized – settlement
+/- change in cash flow estimates
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 Exercises
56 1. On 1 January 2020 your bank incurs Br40,000 transactions
costs in borrowing Br10,040,000 from NBE. It received (net of
transactions costs) ETB10,000,000 on 01/01/2020 and
promised to pay ETB12,100,000 on 01/01/2022.
 Required:
 Calculate the effective interest rate.
 Prepare the journal entries required in relation to this debt for each year

2. Your bank issued debt with a nominal value of Br400 million

on 1 January 2020, receiving proceeds of Br315.53 million.
The debt will be redeemed on 31 December 2024. The
interest rate on the debt is 4% and the internal rate of return
is 9.5%.
 Required: Based upon the information provided, show how the debt
should be accounted.

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 Derecognition of a financial liability
 Only when extinguished, that is:
a. Discharged
b. Cancelled
c. Expired
 If existing debt is replaced with new one
with substantially different terms (or there
is a significant modification of terms):
 Treat as new liability and extinguishment of original
liability
 Gain or loss: profit/ loss
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57
58 Exercise
On December 31, 2020, your bank enters into a debt
modification agreement with China Development Bank.
China Development Bank restructures a Br100,500,000
loan receivable issued at par (interest paid to date) by:
 Reducing the principal obligation from Br100,500,000 to
Br90,000,000;
 Extending the maturity date from December 31, 2020, to
December 31, 2024; and
 Reducing the interest rate from the historical effective rate of
12 percent to 8 percent. Given your bank’s financial distress,
its market-based borrowing rate is 15 percent.
 Required: prepare the journal entry to record the debt
modification agreement
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59 DISCLOSURE REQUIREMENTS

An entity must group its financial instruments into

classes of similar instruments
The two main categories of disclosures required
are information about the:
1. significance of financial instruments
2. nature and extent of exposure to risks arising
from financial instruments

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 Cases
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1. Would an investment in a convertible loan qualify to be
measured at amortized cost under IFRS 9? Why or why not?
2. An entity's business model is to purchase portfolios of
financial assets, such as loans. Those portfolios may or may
not include financial assets with incurred credit losses. If
payment on the loans is not made on a timely basis, the
entity attempts to extract the contractual cash flows
through various means – for example, by contacting the
debtor through mail, telephone, and so on. In some cases,
the entity enters into interest rate swaps to change the
interest rate on particular financial assets in a portfolio
from a floating interest rate to a fixed interest rate. Which
business model does the entity use?
 How does the entity measure such financial assets?

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3. During the financial year ended December
31, 2018, an entity issued the two financial
instruments described below. For each of the
instruments, identify whether it should be
classified as debt or equity.
(i) Redeemable preferred shares with a coupon
rate 8%. The shares are redeemable on
December 31, 2022 at premium of 10%.
(ii) A grant of share options to senior
executives. The options may be exercised
from December 31, 2019.
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Questions/ Suggestions

AAUSC IFRS Project Office