AASB 132 - Financial Instruments: Presentation - August 2015

This accounting standard tells Australian companies and other entities how to classify financial instruments on their balance sheets — specifically whether to treat them as liabilities (debts), equity (ownership), or financial assets.

What it covers:

• The core rule: A financial instrument is a liability if the issuer has a contractual obligation to deliver cash or another financial asset to the holder. It's equity only if there's no such obligation.
• Complex instruments: Some instruments mix features of both debt and equity (like convertible bonds). These must be split into separate liability and equity components.
• "Puttable" instruments: Special rules apply to instruments that give holders the right to demand their money back (like shares in some mutual funds or unit trusts). These can sometimes be classified as equity despite having redemption features, but only if they meet strict conditions about being subordinate to all other claims and sharing in residual returns.
• Offsetting: When can a company net off a financial asset against a financial liability? Only when it has a legally enforceable right to set off AND intends to settle net.