derivative – A financial instrument or other contract within the scope of IAS 39 (see paragraphs 2–7) with all three of the following characteristics:
(a) its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract (sometimes called the ‘underlying’);
(b) it requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and
(c) it is settled at a future date.
derivative financial instruments – Financial instruments such as financial options, futures and forwards, interest rate swaps and currency swaps, which create rights and obligations that have the effect of transferring between the parties to the instrument one or more of the financial risks inherent in an underlying primary financial instrument. On inception, derivative financial instruments give one party a contractual right to exchange financial assets or financial liabilities with another party under conditions that are potentially favorable, or a contractual obligation to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavorable. However, they generally do not result in a transfer of the underlying primary financial instrument on inception of the contract, nor does such a transfer necessarily take place on maturity of the contract. Some instruments embody both a right and an obligation to make an exchange. Because the terms of the exchange are determined on inception of the derivative instrument, as prices in financial markets change those terms may become either favorable or unfavorable. [IAS 32]
development – The application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use. [IAS 38.8]
diluted earnings per share – Profit or loss attributable to ordinary equity holders of the parent entity (the numerator), divided by the weighted average number of ordinary shares outstanding during the period (the denominator), both adjusted for the effects of all dilutive potential ordinary shares. [IAS 33.31]
dilution – A reduction in earnings per share or an increase in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions. [IAS 33.5]
dilutive potential ordinary shares – Potential ordinary shares whose conversion to ordinary shares would decrease earnings per share or increase loss per share from continuing operations. [IAS 33.41]
direct insurance contract – An insurance contract that is not a reinsurance contract. [IFRS 4.A]
direct method of reporting cash flows from operating activities – A method whereby major classes of gross cash receipts and gross cash payments are disclosed. [IAS 7.18(a)]
discontinued operation – A component of an entity that either has been disposed of or is classified as held for sale and:
(a) represents a separate major line of business or geographical area of operations,
(b) is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or
(c) is a subsidiary acquired exclusively with a view to resale.
discretionary participation feature – A contractual right to receive, as a supplement to guaranteed benefits, additional benefits:
(a) that are likely to be a significant portion of the total contractual benefits;
(b) whose amount or timing is contractually at the discretion of the issuer; and
(c) that are contractually based on:
(i) the performance of a specified pool of contracts or a specified type of contract;
(ii) realized and/or unrealized investment returns on a specified pool of assets held by the issuer; or
(iii) the profit or loss of the company, fund or other entity that issues the contract.
disposal group – A group of assets to be disposed of, by sale or otherwise, together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction. The group includes goodwill acquired in a business combination if the group is a cash-generating unit to which goodwill has been allocated in accordance with the requirements of paragraphs 80–87 of IAS 36 or if it is an operation within such a cash-generating unit. [IFRS 5.A]
dividends – Distributions of profits to holders of equity investments in proportion to their holdings of a particular class of capital. [IAS 18.5]
economic life – Either:
(a) the period over which an asset is expected to be economically usable by one or more users; or
(b) the number of production or similar units expected to be obtained from the asset by one or more users.
effective interest method – A method of calculating the amortized cost of a financial asset or a financial liability (or group of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period. [IAS 39.9]
effective interest rate – The rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, an entity shall estimate cash flows considering all contractual terms of the financial instrument (for example, prepayment, call and similar options) but shall not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate (see IAS 18), transaction costs, and all other premiums or discounts. There is a presumption that the cash flows and the expected life of a group of similar financial instruments can be estimated reliably. However, in those rare cases when it is not possible to estimate reliably the cash flows or the expected life of a financial instrument (or group of financial instruments), the entity shall use the contractual cash flows over the full contractual term of the financial instrument (or group of financial instruments). [IAS 39.9]
embedded derivative – A component of a hybrid (combined) instrument that also includes a non-derivative host contract—with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. A derivative that is attached to a financial instrument but is contractually transferable independently of that instrument, or has a different counterparty from that instrument, is not an embedded derivative, but a separate financial instrument. [IAS 39.10]
employee benefits – All forms of consideration given by an entity in exchange for service rendered by employees. [IAS 19.7]
employees and others providing similar services – Individuals who render personal services to the entity and either:
(a) the individuals are regarded as employees for legal or tax purposes;
(b) the individuals work for the entity under its direction in the same way as individuals who are regarded as employees for legal or tax purposes; or
(c) the services rendered are similar to those rendered by employees. For example, the term encompasses all management personnel, ie those persons having authority and responsibility for planning, directing and controlling the activities of the entity, including non-executive directors.
entity-specific value – The present value of the cash flows an entity expects to arise from the continuing use of an asset and from its disposal at the end of its useful life or expects to incur when settling a liability. [IAS 16.6, IAS 38.8]
equity – The residual interest in the assets of the entity after deducting all its liabilities.
equity instrument – A contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. [IAS 32.11, IFRS 2.A]
equity instrument granted – The right (conditional or unconditional) to an equity instrument of the entity conferred by the entity on another party, under a share-based payment arrangement. [IFRS 2.A]
equity interests – In IFRS 3 is used broadly to mean ownership interests of investor owned entities and owner, member or participant interests of mutual entities.
equity method – A method of accounting whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor’s share of net assets of the investee. The profit or loss of the investor includes the investor’s share of the profit or loss of the investee. [IAS 28.2]
equity-settled share-based payment transaction – A share-based payment transaction in which the entity receives goods or services as consideration for equity instruments of the entity (including shares or share options). [IFRS 2.A]
events after the reporting period – Those events, favorable and unfavorable, that occur between the end of the reporting period and the date when the financial statements are authorized for issue. Two types of events can be identified:
(a) those that provide evidence of conditions that existed at the end of the reporting period (adjusting events after the reporting period); and
(b) those that are indicative of conditions that arose after the reporting period (non-adjusting events after the reporting period).
exchange difference – The difference resulting from translating a given number of units of one currency into another currency at different exchange rates. [IAS 21.8]
exchange rate – The ratio of exchange for two currencies. [IAS 21.8]
expenses – Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. [F.70(b)]
experience adjustments – The effects of differences between previous actuarial assumptions and what has actually occurred. [IAS 19.7]
exploration and evaluation assets – Exploration and evaluation expenditures recognized as assets in accordance with the entity’s accounting policy. [IFRS 6.A]
exploration and evaluation expenditures – Expenditures incurred by an entity in connection with the exploration for and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. [IFRS 6.A]
exploration for and evaluation of mineral resources – The search for mineral resources, including minerals, oil, natural gas and similar non-regenerative resources after the entity has obtained legal rights to explore in a specific area, as well as the determination of the technical feasibility and commercial viability of extracting the mineral resource. [IFRS 6.A]
fair value – The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. [IAS 2.6,
(IAS 16.6), IAS 17.4, IAS 18.7, (IAS 19.7), (IAS 20.3), IAS 21.8, IAS 32.11, (IAS 38.8),
IAS 39.9, (IAS 40.5), IAS 41.8, IFRS 1.A, IFRS 3.A, IFRS 4.A, IFRS 5.A]
fair value – The amount for which an asset could be exchanged, a liability settled, or an equity instrument granted could be exchanged, between knowledgeable, willing parties in an arm’s length transaction. [IFRS 2.A]
fair value less costs to sell – The amount obtainable from the sale of an asset or cash generating unit in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal. [IAS 36.6]
FIFO (first-in, first-out) – The assumption that the items of inventory that were purchased or produced first are sold first, and consequently the items remaining in inventory at the end of the period are those most recently purchased or produced. [IAS 2.27]
finance lease – A lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. [IAS 17.4]
financial asset – Any asset that is:
(b) an equity instrument of another entity;
(c) a contractual right: (i) to receive cash or another financial asset from another entity; or (ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity; or
(d) a contract that will or may be settled in the entity’s own equity instruments and is: (i) a non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments; or (ii) a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose the entity’s own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery of the entity’s own equity instruments.
financial asset or financial liability at fair value through profit or loss – A financial asset or financial liability that meets either of the following conditions:
(a) It is classified as held for trading. A financial asset or financial liability is classified as held for trading if it is: (i) acquired or incurred principally for the purpose of selling or repurchasing it in the near term; (ii) part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or (iii) a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).
(b) Upon initial recognition it is designated by the entity as at fair value through profit or loss. An entity may use this designation only when permitted by IAS 39 paragraph 11A (embedded derivatives) or when doing so results in more relevant information, because either: (i) it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as ‘an accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases; or (ii) a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity’s key management personnel (as defined in IAS 24).
Accounting10 years ago
Check Payment Issues Letter [Email] Templates
Accounting11 years ago
What is Journal Entry For Foreign Currency Transactions
Accounting6 years ago
Accounting for Business Acquisition Using Purchase Method
Accounting11 years ago
Journal Entry for Correction Of Errors and Counterbalancing