Traditional Culture Encyclopedia - Traditional virtues - What are the three classifications of financial instruments?
What are the three classifications of financial instruments?
Three classifications of financial instruments:
Equity instruments: If they are held for trading, they are classified as financial assets at fair value through profit or loss (trading financial assets).
If they are non-trading, the designation right can be exercised to designate them directly as financial assets at fair value through other comprehensive income (other investments in equity instruments), or if such designation right is not exercised, they remain as financial assets at fair value through profit or loss (trading financial assets).
Debt instruments: first see whether they can pass the contractual cash flow test, and if they cannot, they are directly classified as financial assets at fair value through profit or loss (trading financial assets).
If the contractual cash flow test can be passed, then the business model of the enterprise to manage the financial asset, if it is only to collect the principal and interest, then it is a financial asset measured at amortized cost (debt investment), and if it is for sale, then it is a financial asset measured at fair value through profit or loss (financial assets for trading).
If the purpose is both, i.e., to collect principal and interest but also to sell them at a suitable price, they are classified as financial assets at fair value through other comprehensive income (other debt investments).
Derivatives: all of them are financial assets at fair value through profit or loss (trading financial assets).
From the accounting entries:
Trading financial assets: can be equity instruments, debt instruments and derivatives.
Debt investments: debt instruments (debt instruments that receive only contractual cash flows).
Other debt investments: debt instruments (debt instruments with both purposes).
Other investments in equity instruments: equity instruments (equity instruments in which the right to designate is exercised).
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