Question

b) IAS 32 makes it clear that the following items are not financial instruments.

i. Physical assets, eg inventories, property, plant and equipment, leased assets and intangible assets (patents, trademarks etc)

ii. Prepaid expenses, deferred revenue and most warranty obligations iii. Liabilities or assets that are not contractual in nature (Deferred revenue, warranty obligations

iii. Liabilities or assets that are not contractual in nature (Deferred revenue, warranty obligations

Required
Write a Memo to your CEO, Mr Francis Tagoe explaining with reasons why the items listed above do not qualify as financial instruments.        

Answer 1

Refer to the definitions of financial assets and liabilities below

i) Physical assets: Control of these creates an opportunity to generate an inflow of cash or other assets, but it does not give to a present right to receive cash or other financial assets.

ii) Prepaid expenses, etc: the future economic benefit is the receipt of goods/services rather than the right to receive cash or other financial assets

iii) Deferred revenue, warranty obligations: the probable outflow of economic benefits is the delivery of goods/ services rather than cash or another financial asset