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.