Summary - Accounting and Reporting of
Financial Instruments
Ye summary Hinglish mein hai aur ICAI ke Chapter 11 (Accounting and Reporting of
Financial Instruments) ko cover karti hai. Har unit ko simplify karke explain kiya gaya hai,
aur important keywords ko bold mark kiya gaya hai.
Unit 1: Financial Instruments - Scope and Definitions
• **Financial Instrument**: Ek aisa contract jisme ek party ke liye Financial Asset banta hai
aur doosri party ke liye Financial Liability ya Equity Instrument.
• **Financial Asset**: Cash, Equity Instrument of another entity, ya Contractual Right to
receive cash.
• **Financial Liability**: Contractual obligation to deliver cash/other financial asset.
• **Equity Instrument**: Residual interest after deducting liabilities (Fixed-for-Fixed
principle).
• Scope exclusions: Subsidiaries, associates, employee benefits, insurance contracts, share-
based payments, etc.
Unit 2: Classification and Measurement
• Financial Assets classification ke liye 2 tests:
- **Business Model Test** (Hold to Collect / Hold to Collect & Sell / Trading)
- **SPPI Test** (Solely Payments of Principal and Interest)
• Categories:
- **Amortised Cost**
- **FVTOCI**
- **FVTPL**
• Liabilities: Amortised Cost or FVTPL.
• Impairment: **Expected Credit Loss (ECL) Model**.
Unit 3: Equity vs Financial Liabilities
• Equity agar koi contractual repayment obligation nahi hai.
• Liability agar repayment obligation fixed hai.
• **Preference Shares**: Redeemable = Liability; Irredeemable + discretionary dividend =
Equity.
• **Compound Instruments**: Dono features (Debt + Equity) ko alag-alag account karte
hain.
• Offsetting allowed if enforceable legal right exists.
Unit 4: Derivatives and Embedded Derivatives
• **Derivative**: Futures, Options, Swaps (low/no initial investment, settlement future
mein).
• **Embedded Derivative**: Host contract ke andar included derivative. Agar closely related
nahi hai to separate account karna padta hai.
Unit 5: Recognition and Derecognition
• Initial recognition at **Fair Value**.
• Derecognition when significant risks/rewards transfer ho jayein.
• Financial liabilities derecognised jab settled, cancelled, or expired ho jaye.
• Debt-Equity swaps ka bhi specific treatment diya gaya hai.
Unit 6: Hedge Accounting
• **Hedged Items**: Assets, Liabilities, firm commitments, forecast transactions.
• **Hedging Instruments**: Derivatives (like swaps, futures).
• Types of Hedge:
- **Fair Value Hedge**
- **Cash Flow Hedge**
- **Net Investment Hedge**
• Proper documentation compulsory.
Unit 7: Disclosures
• Entity ko disclose karna hota hai:
- Risk management policies
- Fair value hierarchy
- Credit risk exposure
- Liquidity risk
- Hedge effectiveness
- Carrying amounts of assets/liabilities
