Ind AS 32, Financial Instruments: Presentation – In Detailed

Ind AS 32, Financial Instruments Presentation: The objective of Ind AS 32 is to establish principles for presenting financial instruments as liabilities.

Raju Choudhary

Ind AS 32

Ind AS 32, Financial Instruments Presentation: The objective of Ind AS 32 is to establish principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and financial liabilities. It applies to the classification of  financial  instruments, from the perspective of the issuer, into financial assets, financial liabilities  and equity instruments; the classification of related interest, dividends, losses and gains; and the circumstances in which financial assets and  financial liabilities should be offset.

Ind AS 32

The principles in this Standard complement the principles for recognising and measuring financial assets and financial liabilities in Ind AS 109, Financial Instruments, and for disclosing information about them in Ind AS 107, Financial Instruments: Disclosures.

This Standard defines Financial Instrument, Financial Asset,  Financial Liability, Equity Instrument, Puttable Financial Instruments.

list of Other IndAS

Ind AS 101Ind AS 102Ind AS 103
Ind AS 104Ind AS 105Ind AS 106
Ind AS 107Ind AS 108Ind AS 109
Ind AS 110Ind AS 111Ind AS 112
Ind AS 113Ind AS 114Ind AS 1
Ind AS 2Ind AS 7IndAS 8
Ind AS 10Ind AS 12Ind AS 19
Ind AS 20Ind AS 21Ind AS 23
Ind AS 24Ind AS 27Ind AS 28
Ind AS 29Ind AS 33
Ind AS 34Ind AS 36Ind AS 37
Ind AS 38Ind AS 40Ind AS 41


This standard requires an issuer to classify the instrument, or itscomponent parts, on initial recognition as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset and an equity instrument. An instrument is an equity instrument if it evidences a residual interest in the net assets of the entity and both the followingconditions are met:


Content in this Article

  • The instrument includes no contractual obligation to deliver cash or another financial asset to another entity; or to exchange financial assets or financial liabilities under potential unfavourable condition to the
  • In case of settlement by the issuer’s own equity instruments, it should be fixed to fixed contracts (no. of equity instruments and the price per unit of equity instruments is fixed).

Puttable Financial Instruments

As an exception, puttable instruments are classified as an equity instrument even if they meet the definition of financial liability. A puttable instrument is a financial instrument that gives the holder of the instrument the right to put the instrument back to the issuer for cash or another financial asset or is automatically put back to the issuer on the occurrence of an uncertain future event or the death or retirement of the instrument holder.

Settlement Options

In case a derivative financial instruments provides an option to one party to choose between various modes of settlement (settlement net in cash or by exchanging shares for cash), such derivative instrument should be a financial asset or a financial liability unless all of the settlement alternatives would result in it being an equity instrument.

Compound Financial Instruments

It may be possible that a non-derivative financial instrument may contain both component of liability and component of equity as well. Such components shall be classified separately as financial liabilities or equity instruments. Example, bonds with an option to convert into equity.

Treasury shares

If an entity reacquires its own equity instruments, those instruments (‘treasury shares’) shall be deducted from equity. No gain or loss shall be recognised in profit or loss on the purchase, sale, issue or cancellation of an entity’s own equity instruments. Such treasury shares may be acquired and held by the entity or by other members of the consolidated group. Consideration paid or received shall be recognised directly in equity.

Interest, dividends, losses and gains

An entity should recognise all interest, dividends, losses and gains related to the financial instrument as income or expense in profit or loss. Distributions to holders or transaction cost of an equity transaction should be recognised by the entity directly in equity.

Offsetting a financial asset and a financial liability

An entity should offset a financial asset and a financial liability and the net amount should be presented in the balance sheet only when it has:

  • current legally enforceable right to set off the recognised amounts; and
  • intends either to settle on a net basis, or to realise the asset and settle the liability

An entity that undertakes a number of financial instrument transactions with a single counterparty may enter into a ‘master netting arrangement’ with that counterparty. Such an agreement provides for a single net s ettlement of all financial instruments covered by the agreement in the event of default on, or termination of, any one contract.

Consolidated financial statements

An entity in its consolidated financial statements, when classifying a financial instrument (or a component of it) should consider all terms and conditions agreed between members of the group and the holders of the instrument in determining whether the group as a whole has an obligation to deliver cash or another financial asset in respect of the instrument or to settle it in a manner that results in liability classification.

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Raju Choudhary

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