MFRS 132 Financial Instrument: Presentation

MFRS 132 specifies presentation for financial instruments. The recognition and
measurement and therefore the disclosure of monetary instruments are the themes of MFRS 9
or MFRS 39 and MFRS 7 respectively. For presentation, financial instruments are classified
into financial assets, financial liabilities and equity instruments. Financial asset is any asset
that is cash. Contractual right to receive cash or another financial asset or to exchange
financial assets or liabilities under potentially favourable conditions. Certain contracts settled
in the entity’s own equity. Next is financial liability is defined as liability that is contractual
obligation to deliver cash or another financial asset or to ex-change financial asset or liability
under potential unfavourable conditions. Next is equity instrument is contract evidencing a
residual interest in the assets of an entity after deducting all of its liabilities. Differentiation
between a financial liability and equity depends on whether an entity has an obligation to
deliver cash.

Initially, financial assets and liabilities should be measured at fair value including
transaction costs, for assets and liabilities not measured at fair value through profit or loss.
Subsequently, financial assets and liabilities should be measured at fair value, with the
following exceptions;

 Loans and receivables, held-to-maturity investments, and non-derivative financial

liabilities should be measured at amortised cost using the effective interest method.
 Investments in equity instruments with no reliable fair value measurement (and
derivatives indexed to such equity instruments) should be measured at cost.
 Financial assets and liabilities that are designated as a hedged item or hedging
instrument are subject to measurement under the hedge accounting requirements of
the IAS 39.
 Financial liabilities that arise when a transfer of a financial asset does not qualify for
de-recognition, or that are accounted for using the continuing-involvement method,
are subject to particular measurement requirements.
 The fundamental rule in MFRS 132 is to classify the financial instruments on initial
recognition as a financial liability, a financial asset or an equity instrument in accordance
with the substance of the contract and the definitions of a financial asset, financial liability
and an equity instrument. The main question to respond when classifying on instrument as
either a financial liability or an equity instrument is. If there is any contractual obligation to
deliver cash means then the instrument is a financial liability. But, if not then the instrument
is an equity instrument.

Disclosure of MFRS 312, an enterprise should describe its financial risk management
objectives and policies, including hedging policies. For each class of financial asset, financial
liability and equity, both recognised and unrecognised MFRS 132 requires disclose of, the
extent and nature of the financial instruments, including significant terms and conditions
including principal amount, maturity, early settlement or conversion options, amount and
timing of money flows. Accounting policies and methods adopted including recognition
criteria and measurement principles. Specified information about exposure to rate of interest
risk including re-pricing dates and effective interest rates. Specified information about
exposure to credit risk, specified information about the fair value of the financial instrument
and special information if a financial asset is carried in excess of its fair value.

The basic premise for the de-recognition model in IAS 39 is to work out whether the
asset into account for de-recognition is an asset in its entirety or specifically identified cash
flows from an asset or a totally proportionate share of the cash flows from an asset or a totally
proportionate share of specifically identified cash flows from a financial asset. Once the asset
into account for de-recognition has been determined, an assessment is formed on whether the
asset has been transferred, and if so, whether the transfer of that asset is subsequently eligible
for de-recognition. A financial liability should be far away from the record when, and only,
it's extinguished, and that is, when the requirement laid out in the contract is either discharged
or cancelled or expires. Where there has been an exchange between an existing borrower and
lender of debt instruments with substantially different terms, or there has been a considerable
modification of the terms of an existing financial liability, this transaction is accounted for as
an extinguishment of the first financial liability and therefore the recognition of a
replacement financial liability.
REFERENCES

https://www.iasplus.com/en/binary/dttpubs/deloitteias39book.pdf

http://www.masb.org.my/pdf.php?pdf=BV2018_MFRS%20132.pdf&file_path=pdf_file