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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Accounting for corporate finance: key concepts: examples of what are and are not financial instruments

Examples of financial instruments

The definitions in CFM21060 mean that the following are financial instruments:

  • cash, demand and time deposits, trade accounts receivable and payable and loans of all kinds that are to be settled in cash
  • unconditional lease obligations
  • loan notes, bonds, debentures and other debt securities
  • warrants or options to subscribe for shares of, or purchase shares from, the issuing entity
  • obligations of an entity to issue or deliver shares under such warrants or options
  • derivative financial instruments e.g. financial options, futures and forwards, interest rate swaps and currency swaps
  • contingent liabilities that arise from contracts and will, if they crystallise, be settled in cash - an example is a financial guarantee.

Some of these instruments may, however, be outside the scope of IAS 32 / 39 or of Sections 11 /12 of FRS 102 - see CFM21140.

Examples of what are not financial instruments

Similarly, the definitions mean that the following are not financial instruments:

  • physical assets, such as stock, buildings, plant and equipment
  • intangible assets such as patents and trademarks
  • prepayments for goods or services
  • obligations to be settled by delivering goods or rendering services, such as most warranty obligations
  • income taxes, including deferred tax, since these are statutory rather than contractual obligations
  • derivatives to be settled by physical delivery
  • contingent items that do not arise from contracts, for example a contingent liability to pay damages if the company loses a court case
  • minority interests.