Question

A company takes a loan from a bank for five years, and an overdraft quota for a certain amount of time. is it a financial instrument?

according to NIC 39

Answer 1

NIC 39
The standard intensifies the use of fair value for the treatment accounting of financial instruments.The following four categories of financial assets indicated : 

a) financial assets or liabilities held for trading; 
b) investments held until maturity; 
c) loans and accounts receivable originated by the company; 
d) financial assets available for sale;

RECOGNITION OF A FINANCIAL ASSET OR A FINANCIAL LIABILITY

Initial recognition.- The company recognizes a financial asset or liability when it becomes, in part, bound by the provisions of the contract of the respective financial instrument.

Subsequent measurement of a financial asset.- After the initial recognition of financial assets, the company must value them at fair value, except for the following categories of financial assets: 
a) loans and accounts receivable originated by the company and not held for trading ; 
b) investments held until maturity; and 
c) all financial assets that do not have a quoted price in the active market and whose fair value can not be reliably valued.

Conclusion, Since in the above case a company has taken a loan from a bank for five years, and an overdraft quota for a certain amount of time which does not qualify in any of the four categories .Hence, it is not a Financial Instrument according to NIC 39