CFM21070 - Accounting for corporate finance: key concepts: financial instrument, financial assets and financial liabilities: examples

Examples of financial assets and liabilities

Financial assets

The principal categories defined as being financial assets are:

  • Cash;
  • An equity instrument (CFM21100) of another entity, which is not a subsidiary - for example, ordinary shares in another company;
  • A contractual right to receive cash or another financial asset from another entity. Loans and bank deposits are examples of assets where there is a contractual right to receive cash from another entity. A company holding a convertible bond has a contractual right to receive another financial asset (shares, with cash as an alternative) from the issuer; or
  • A contractual right to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity. For example, an interest rate swap that is in-the-money will be a financial asset - the company has both a contractual obligation to pay, and a contractual right to receive, cash amounts, but over the remaining life of the swap expects to receive more than it will pay.

Financial liabilities

The main categories of financial liability are

  • a contractual obligation to deliver cash or another financial asset to another entity - for example, borrowings of all kinds or debt securities that the company has issued; or
  • a contractual obligation to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable - for example, an out-of-the-money interest rate swap.

Contracts settled in a company’s own shares

The definitions in IAS 32 and Section 22 of FRS 102 also provide for certain contracts that will or may be settled in a company’s own shares to be financial assets or financial liabilities (see CFM21230).

CFM21130 provides further detail on what falls inside or outside of these definitions.

CFM21150 deals with the status of lease obligations.